Background
From April 2026, employment expenses and gift aid will be removed from the tax codes of some taxpayers where HM Revenue & Customs (HMRC) data shows that they are unlikely to be accurate or relevant. Individual’s impacted by this are likely to be in the process of receiving a new tax code from HMRC for the 2026/27 tax year if they have not already done so.
An individual’s tax code is used by their employers and pension providers to work out how much income tax to deduct from their pay or pension. HMRC tells the employer or pension provider which tax code to use.
Detail
Tax codes are generated and updated where necessary by HMRC based on information that they receive for a particular individual from a variety of sources. Information may obtained by HMRC directly from the individual’s Self-Assessment tax return, from information submitted by their employer or from the individual themselves. The aim of the tax code is to try to ensure the appropriate amount of tax is deducted via PAYE through either the employers or pension company payroll, thus avoiding a large end of tax year tax over or underpayment. In many cases the use of the tax code also avoids the need for a individual to submit a Self-Assessment tax return where they have no income other than via PAYE.
HMRC’s guidance on GOV.UK explains how a taxpayer can find their tax code, what it means and how to contact HMRC if they think their tax code is incorrect.
HMRC have recently revealed that employment expenses of over £120 will be removed from an individual’s tax code from 2026/27 if at least one of the following criteria is also met:
- The customer has no current pay as you earn (PAYE) income.
- There has been an employment gap of a full tax year since the employment expense was claimed.
- No self-assessment tax returns have been filed since 2021/22, where there are indicators that the expense should have been resubmitted via self-assessment.
- The employment expenses included within the tax code are greater than those included in their 2022/23 SA tax return.
In addition, HMRC have also stated that higher rate gift aid relief will be removed from the taxpayer’s tax code where:
- the same amount of relief has been included in their tax code for at least three tax years; and
- no SA tax returns have been filed for at least three years.
HMRC have said that any taxpayers who believe they are incorrectly impacted by these changes should submit a claim via the usual processes (see the reference to HMRC’s guidance above) to ensure they still claim the tax relief they are entitled to.
If you receive a revised tax code for 2026/27 and are unsure if the changes may be correct, or have any other questions regarding the points raised above, please speak to your usual contact at the firm.
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