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Tina Davies – Payroll Manager

01792 410117


Dynamic coding

In July 2017, PAYE tax codes became more refined. Under the new system, known as dynamic coding, HMRC issues an updated tax code once they become aware of a change that will affect the tax an employee pays, such as a new benefit in kind.

Previously, HMRC was seldom aware of changes in benefits until the employer submitted the P11D forms. HMRC would collect the resulting underpayment through an adjustment to the employee’s tax code for the following tax year.

Under the new system, HMRC adjusts the employee’s tax code to collect the right amount of tax for the current tax year. However, HMRC needs a ’trigger’ before they change the tax code.

This trigger could be the employer submitting a full payment summary (FPS) or a P46 form, which relates pay rolling benefits through payroll, or the employee updating their personal tax account.

Once HMRC is aware of the change, it will recalculate the employee’s annual tax bill and include any underpayment of tax.

HMRC will then issue an amended code to collect all the PAYE tax owing for the current year. This calculation will be based on the employee’s estimated pay for the year, which is based on the pay-to-date figure, as reported on your most recent FPS.

HMRC will send an employee tax code notification to you, as well as a copy of the new notice of coding to the employee.

Once you have received a new code from HMRC, you should update your payroll to reflect the code change.

For more information on how Bevan & Buckland can help with your payroll duties. Please contact Tina Davies on 01792 410117 or via email