HMRC PAYE Tax Code: How to Pay Tax Through Your Tax Code

An HMRC PAYE tax code tells your employer or pension provider how much Income Tax to deduct from your salary or pension. In some circumstances, HMRC can also adjust your PAYE tax code to collect an outstanding Self Assessment tax bill.

This process, known as PAYE coding out, allows eligible taxpayers to repay certain tax liabilities through deductions from their future salary or pension rather than making a separate lump-sum payment.

For example, if you owe less than £3,000 through Self Assessment and already pay Income Tax through PAYE, HMRC may be able to collect the amount through your tax code, provided you meet the relevant conditions and filing deadlines.

This guide explains how PAYE tax codes work, who qualifies for coding out, the important Self Assessment filing deadlines, and how to check or correct your HMRC tax code, our guide to personal tax for UK employees and self-employed individuals provides the broader framework before exploring PAYE tax codes in detail.

Who Can Pay Tax Through a PAYE Tax Code?

This option is designed for taxpayers who submit a Self Assessment tax return but owe a relatively small amount of tax. Rather than requiring payment in one instalment, HMRC may recover the balance through your PAYE tax code, spreading the amount across the following tax year.

This commonly applies to:

• Employees paying Income Tax through PAYE
• Recipients of company pensions
• Individuals who complete a Self Assessment tax return
• Taxpayers with eligible underpayments that meet HMRC’s coding-out rules

For business owners who employ family members through PAYE, understanding how tax codes apply to those employees is equally important our guide on the tax rules for employing family members in your business covers the PAYE obligations, allowable salary levels, and HMRC compliance requirements that apply in those situations.

What Is a PAYE Tax Code?

Your PAYE tax code tells your employer or pension provider how much Income Tax should be deducted before you receive your salary or pension payments. HMRC may change this code if adjustments are needed, including collecting certain underpaid taxes from a previous Self Assessment return. Rather than asking you to make a separate payment, HMRC can issue a tax code adjustment so the amount owed is collected automatically through payroll over the course of the tax year. For a full explanation of what the letters and numbers in your tax code mean including common codes such as 1257L, BR, and 0T see our guide on understanding UK tax codes and what they mean.

Rather than asking you to make a separate payment, HMRC can issue a tax code adjustment so the amount owed is collected automatically through payroll over the course of the tax year. This process is commonly referred to as having your tax “coded out”.

When Can You Pay Your Self Assessment Tax Bill Through PAYE?

HMRC may collect your Self Assessment tax bill through your PAYE tax code when all the following conditions are met:

• You owe less than £3,000 on your eligible Self Assessment tax bill

• You already pay Income Tax through PAYE, such as through employment or a company pension

• You submit your paper Self Assessment return by 31 October or your online return by 30 December

• You have sufficient PAYE income for HMRC to collect the amount

• You have not asked HMRC to exclude the amount from PAYE collection

If you meet the requirements, HMRC will normally arrange coding out automatically. You may be able to pay tax through your PAYE tax code if all of the following conditions apply.

What Is the PAYE Coding Deadline for Self Assessment?

For the 2025/26 tax year, the relevant deadlines are:

Submitting your online return by 30 December gives HMRC time to consider collecting an eligible tax bill through your 2027/28 PAYE tax code.

If you submit your return after the coding-out deadline, you can still meet the normal Self Assessment filing deadline, but you will generally need to pay your tax bill using another accepted payment method.

Important: Filing your return early does not guarantee coding out. HMRC must also be able to recover the amount within its PAYE collection limits.

When HMRC Cannot Collect Tax Through Your PAYE Code

Not every Self Assessment liability can be recovered through PAYE coding.

HMRC will not normally allow coding out if:

• You do not receive enough taxable employment or pension income

• The additional deduction would result in more than 50% of your PAYE income being taken in tax

• The adjustment would more than double the tax you would normally pay through PAYE

• Your original bill was £3,000 or more and you made a part payment solely to reduce it below the £3,000 limit

• You missed the relevant filing deadline for coding out

Self-employed individuals also generally cannot pay Class 2 National Insurance through their tax code, except for certain historic liabilities.

What If You Cannot Pay Through Your Tax Code?

If coding out is unavailable, you will need to pay the outstanding tax using another HMRC-approved method.

If you cannot pay your Self Assessment bill by the relevant deadline, consider contacting HMRC about your payment options before the amount becomes overdue.

An accountant can help distinguish between tax that may be collected through PAYE and liabilities that require a separate payment. Individuals dealing with PAYE adjustments or Self Assessment underpayments may benefit from professional PAYE tax accounting services in Farringdon when reviewing tax codes, HMRC calculations and amounts being collected through payroll.

How Paying Tax Through PAYE Works in Practice

When HMRC collects tax through your PAYE tax code, the amount you owe is spread across the tax year rather than being paid as a single lump sum. This approach can make budgeting easier for many taxpayers, particularly where the balance is relatively small.

Once your HMRC tax code has been updated, your employer or pension provider automatically applies the revised code through payroll. As a result:

• Your PAYE tax code will change.
• You will pay slightly more Income Tax each pay period.
• Your monthly take-home pay will reduce until the outstanding tax has been collected.
• No separate monthly action is normally required from you.

Although paying tax through PAYE is convenient, it is still important to review your payslips and coding notice to ensure the adjustment is accurate.

It is also worth noting that certain payments made through payroll such as redundancy payments can affect both your tax code and your overall tax position for the year. Our guide on how redundancy pay is taxed under PAYE explains how these payments interact with your tax code and what HMRC expects to be reported.

PAYE Tax Code Example: How an Underpayment Is Collected

Suppose an employee owes £1,200 in eligible Self Assessment tax for a previous tax year.

If HMRC agrees to collect the amount through PAYE, it can adjust the employee’s tax code so that approximately £100 of additional Income Tax is deducted each month over 12 months.

The precise tax code adjustment depends on the employee’s tax position and applicable tax rates. HMRC may reduce the tax-free allowance reflected in the code to collect the required amount. For businesses processing these deductions, our payroll and PAYE services in London help keep pay calculations, payslips and HMRC reporting aligned with the tax codes issued.

Does a Lower PAYE Tax Code Mean You Owe More Tax?

Not necessarily. A change to your PAYE tax code can result from underpaid tax, employment benefits, changes in income or adjustments to your Personal Allowance. Check the explanation accompanying your HMRC coding notice before assuming that a change relates to a previous tax bill.

Advantages and Disadvantages

Benefits

• Avoids paying the full tax bill in one payment.
• Spreads the cost across the tax year.
• Payments are collected automatically through payroll.
• Helps reduce short-term cash flow pressure for eligible taxpayers.

Things to Consider

• Your take-home pay will be lower throughout the year.
• An incorrect tax code adjustment could result in paying too much or too little tax.
• If your circumstances change during the year, your PAYE tax code may need updating again.

For a full explanation of the most common triggers that cause HMRC to issue a new tax code and what each change means for your pay, see our guide on the reasons your tax code might change during the year.

Common Reasons HMRC Changes Your Tax Code

HMRC may update your HMRC tax code for several reasons, not just to collect underpaid Self Assessment tax. Common examples include:

• Collecting tax owed from a previous Self Assessment return.
• Changes to employment or pension income.
• Updates to taxable benefits, such as company cars or private medical insurance.
• Changes to your Personal Allowance or other tax reliefs.
• Correcting information received from employers or pension providers.

If you receive a coding notice that you do not understand, it is worth checking the figures promptly. Errors left uncorrected can continue affecting your tax throughout the year. Taxpayers seeking income tax relief in Fulham advice can review whether eligible tax reliefs and allowances have been correctly reflected in their PAYE tax code, helping avoid unnecessary Income Tax deductions.

In some cases, particularly when starting a new job or receiving income from a new source, HMRC may also apply an emergency tax code  our guide on how emergency tax codes work and when they apply explains what triggers an emergency code, how it affects your deductions, and what steps to take to get it corrected.

How to Check Your HMRC PAYE Tax Code

You can check your current PAYE tax code through your HMRC personal tax account, the HMRC app, your payslip or a PAYE coding notice.

What Should You Check?

• Tax Code: Compare the code shown by HMRC with the code on your payslip

• Employment Income: Check that HMRC has the correct salary estimate

• Pension Income: Confirm that all relevant pension sources are recorded

• Taxable Benefits: Review company cars, medical insurance and other taxable employment benefits

• Previous Underpayments: Check whether HMRC is collecting tax from an earlier year

• Personal Allowance: Review whether your allowance has been adjusted

How Do You Change an Incorrect PAYE Tax Code?

If the information HMRC holds is incorrect, update the relevant details through HMRC’s online Income Tax service or contact HMRC.

Your employer cannot independently choose a different PAYE tax code. They must generally use the code HMRC instructs them to operate. Employers who need help applying HMRC-issued tax codes and reviewing PAYE reporting discrepancies can explore our PAYE services in London.

Where your circumstances involve multiple jobs, pensions, Self Assessment income or benefits in kind, an accountant can help review the overall tax position before you request a correction. Working with a tax advisor Farringdon individuals can consult may help identify PAYE coding errors, review HMRC adjustments and determine whether an outstanding tax liability can be collected through payroll.

What If Your PAYE Tax Code Is Wrong?

If you believe your PAYE tax code is incorrect, don’t ignore it. An incorrect code could mean you pay too much tax or build up an underpayment that HMRC later recovers. You should compare your coding notice with your employment income, pension income, benefits, and any information reported on your Self Assessment tax return.

For a step-by-step guide on where to find your tax code and how to verify it against your circumstances, our resource on how to check your tax code with HMRC walks you through the process in full. If something doesn’t look right, contact HMRC or seek professional advice before the issue affects your future tax payments.

Key Points to Remember

• Eligible Self Assessment underpayments can often be collected through your PAYE tax code.
• You normally need to file your online tax return by 30 December if you want HMRC to collect the tax through PAYE in the following tax year.
• The normal Self Assessment filing deadline remains 31 January.
• Always check any PAYE tax code issued by HMRC to ensure it reflects your current circumstances.
• Reviewing your coding notice early helps prevent unexpected deductions from your salary or pension.

For those who want to review their specific tax code position for the 2025/26 tax year, our dedicated guide on checking your tax code for 2025/26 sets out what to look for and how to confirm your code is correct for that particular year.

Conclusion: Understanding and Reviewing Your PAYE Tax Code

A change to your PAYE tax code can affect your take-home pay without being immediately obvious. In many cases, these adjustments are linked to Self Assessment underpayments, benefits in kind, or updates received by HMRC from employers and pension providers.

It is important to understand why your HMRC tax code has changed and whether the figures being collected through your salary or pension are correct. Reviewing your position early can help prevent overpayment or unexpected underpayment being carried forward into future tax years.

Where a tax code change follows a redundancy situation, it is also worth understanding what portion of any redundancy payment is tax-free our guide on tax-free redundancy payments and the HMRC rules that apply explains the exemptions available and how they interact with your overall tax position for the year.

When Should You Ask an Accountant to Review Your PAYE Tax Code?

A PAYE coding adjustment can be straightforward, but errors may arise when someone has multiple income sources or their tax circumstances change.

Professional advice may be helpful if:

• Your tax code has changed unexpectedly

• HMRC is collecting an underpayment you do not recognise

• You have both PAYE and Self Assessment income

• You receive income from multiple jobs or pensions

• Taxable benefits have changed your Personal Allowance

• You want to check whether an eligible Self Assessment bill can be collected through PAYE

CIGMA Accounting can review your coding notice, employment and pension income, Self Assessment position and relevant HMRC calculations. Individuals seeking a personal tax accountant Fulham can receive support with reviewing PAYE tax codes, identifying incorrect deductions and understanding how Self Assessment liabilities affect their overall Income Tax position.

The aim is to identify whether the tax code reflects your circumstances, explain the deductions being made and establish what steps may be needed to correct any errors.