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How to spot and fix an emergency tax code before it affects your employee's pay
An employee's first payslip shouldn't come as a surprise. But if their take-home pay is lower than expected, an emergency tax code could be the reason.
For employers and payroll teams, this isn't just an employee issue. Using the wrong tax code for longer than necessary can result in payroll queries, corrections, and unnecessary confusion. The good news is that emergency tax codes are generally temporary, and knowing what to look for can help you respond quickly.
This guide explains how employers can identify emergency tax codes, understand why HMRC may issue them, and update payroll correctly to help employees avoid paying the wrong amount of tax.
What is an emergency tax code?
An emergency tax code is a temporary PAYE tax code used when HMRC does not yet have enough information to apply an employee's correct tax code.
With an emergency tax code, PAYE is calculated on a non-cumulative basis. This means tax is worked out using the employee's pay for that particular week or month only, rather than taking previous pay and tax from earlier in the tax year into account.
How to spot an emergency tax code
When reviewing an employee's tax code, employers may come across W1, M1, X, or NONCUM. These indicate that the employee is being taxed on a non-cumulative basis.
Here's what the different indicators mean:
W1 is used for weekly pay
M1 is used for monthly pay
X is used where pay dates are irregular
NONCUM indicates that the tax code is being operated on a non-cumulative basis
With a non-cumulative tax code, PAYE is calculated using the employee's pay and tax details for the current pay period. Previous pay and tax from earlier periods in the tax year are not carried forward when calculating that payment.
Why might HMRC issue an emergency tax code?
An emergency tax code is generally used when HMRC needs more information before it can determine the appropriate tax code for an employee.
This can happen when an employee's circumstances have recently changed or when HMRC has not yet received the information needed to update their PAYE record.
Common situations include:
- A new employee has no P45
When an employee moves to a new employer, their P45 provides important information about their pay and tax for the current tax year.
If the employee does not provide a P45 before their first payment, the new employer may not have the information needed to apply the employee's correct tax code. HMRC may therefore issue an emergency tax code until the relevant details are available.
- Moving from self-employment into employment
Someone moving from self-employment into a PAYE role will not have a P45 from their previous self-employed work. If the employer does not have enough information to determine the appropriate tax code, an emergency tax code may be used.
- Starting another job
Taking on additional employment can affect how an employee's Personal Allowance is allocated. HMRC may therefore issue a different tax code for the additional employment, including an emergency tax code in some circumstances.
- Changes to taxable income or benefits
Changes in an employee's circumstances can also lead HMRC to review their tax code. For example, receiving a company car, private medical insurance, or State Pension can affect the amount of tax an employee needs to pay.
Until HMRC has the information required to calculate the appropriate allowances and deductions, it may issue an emergency tax code.
How to fix an emergency tax code
Once an emergency tax code has been identified, employers can take a few steps to make sure the correct information is reflected in payroll.
For new starters, the first three steps help ensure the right information reaches HMRC from the outset. Steps 4 to 6 apply more broadly whenever an emergency tax code needs to be corrected.
Check the employee's P45 or starter information
If the employee is new, check whether they have provided a P45. If not, make sure they have completed the HMRC starter checklist with the appropriate starter declaration.
Review the tax code in your payroll system
Check that the tax code and tax basis entered in payroll match the information provided. An incorrect tax code or basis can lead to too much or too little tax being deducted.
Ensure the first FPS is submitted on time for new starters
Send the Full Payment Submission (FPS) to HMRC on or before the new starter's first payday. This provides HMRC with the employee's employment and pay information, which HMRC can use when determining their tax code.
- Apply the updated tax code from HMRC
When HMRC sends a P6 tax code notice during the year, update the employee's payroll record as soon as possible. The revised code should be used when processing the employee's subsequent pay.
- Check the next pay run
After the new tax code has been applied, review the employee's PAYE calculation and payslip. If the updated code results in a tax adjustment, this should be reflected in the relevant pay run.
- Keep payroll information updated
Make sure changes such as benefits and pension details are kept current in the payroll software, as changes in an employee's circumstances can affect their tax code.
What if the employee has already paid too much tax?
If an emergency tax code has resulted in excess tax being deducted, applying the correct tax code can correct the PAYE calculation. Where the employee is moved from a non-cumulative code to the correct cumulative code, previous pay and tax for the tax year can be taken into account, which may result in a refund through payroll.
If HMRC determines that a further refund is due after the tax year ends, it may issue a P800 calculation and provide the employee with instructions on what to do next.
How Zoho Payroll helps employers stay organised
Managing emergency tax codes is one part of running payroll accurately. Payroll teams also need to maintain employee records, process salaries, generate payslips, and keep everything organised across the tax year.
Zoho Payroll helps employers manage everyday payroll activities by keeping employee information in one place, calculating PAYE, and generating payslips. Employees get secure self-service access to their payroll documents, so they can review their tax code and deductions each pay period, reducing the payroll queries that emergency tax codes can generate.
Final thoughts
Emergency tax codes are a normal part of the PAYE system, but they shouldn't become a recurring issue. For employers, the process is straightforward: check the employee's information, monitor HMRC tax code notices, apply the latest HMRC-issued code as soon as possible, and verify the following payslip.
A few minutes spent reviewing new starters and acting on HMRC notices promptly can help prevent unnecessary corrections and ensure employees' deductions are based on the most current tax code available.
Frequently Asked Questions
- Can employers change an employee's tax code themselves?
Employers should not independently change an employee's tax code based on their own judgement. They should use the tax code provided by HMRC and update their payroll records when HMRC sends a revised code.
- What should employers do when HMRC sends a new tax code?
Update the employee's payroll record as soon as possible so the revised code can be used in the next available pay run. If the new tax code notice includes previous pay and tax figures, add those figures to the payroll record as well.
- Can employees recover tax paid under an emergency tax code?
Yes. Applying the correct cumulative tax code can take previous pay and tax for the tax year into account and may result in a refund through payroll. If the tax year has ended, HMRC may issue a P800 calculation if a refund is due.
- What is the standard tax code for 2026/27?
For 2026/27, the standard tax code is 1257L for most employees in England and Northern Ireland who are entitled to the standard Personal Allowance. The Personal Allowance is £12,570. Scottish taxpayers generally have an S prefix, while Welsh taxpayers have a C prefix.