Why Does My Payslip Show Different Tax Every Month?

Introduction

Many employees are surprised when they notice that the amount of tax deducted on their payslip changes from one month to the next, even though their salary appears to be the same. This can be confusing, especially if you expect your take-home pay to stay consistent.

Fluctuating tax deductions are usually not a mistake. They occur because of how the UK’s Pay As You Earn (PAYE) system works, along with changes in tax codes, benefits, or personal circumstances. This article explains why your tax might vary from month to month and when you may need to take action.

How PAYE Works

In the UK, Income Tax is collected through the PAYE system. Your employer calculates and deducts the right amount of tax from your pay before you receive it. The calculation is based on your tax code, which tells your employer how much tax-free income you are entitled to each year.

For example, if your tax code is 1257L, it means you can earn £12,570 in a tax year before paying any Income Tax. Employers divide this allowance across the year so that you receive part of it each pay period.

However, the PAYE system is cumulative, meaning it looks at your total earnings and tax paid so far in the tax year. If anything changes, your tax can vary from month to month.

Common Reasons Why Tax Changes Each Month

1. Variable Income or Overtime

If your pay changes because of overtime, bonuses, or commission, your tax will also change. PAYE adjusts automatically each month to reflect your total income to date.

For example, if you earn extra one month, you might move into a higher tax bracket temporarily. The following month, if you earn less, your tax deduction could decrease again.

2. Tax Code Adjustments

Your tax code determines how much of your income is tax-free. HMRC can change it during the year if your circumstances change. Common reasons include:

• Starting or leaving a second job

• Receiving company benefits such as a car or medical insurance

• Changes in untaxed income, such as pensions or rental income

• Adjustments to repay underpaid tax from previous years

When your tax code changes, your employer receives a notification from HMRC. You may notice higher or lower deductions on your next payslip as the new code takes effect.

3. Cumulative vs Non-Cumulative Tax Codes

Most employees are on a cumulative tax code, such as 1257L, which spreads the tax-free allowance across the year. However, if your payslip shows an emergency or non-cumulative code (ending with “W1,” “M1,” or “X”), your tax is calculated only on that month’s pay.

This can cause your tax to fluctuate until your correct cumulative code is restored. Non-cumulative codes are often used when you start a new job and your previous tax details are not yet available.

4. Benefits in Kind

If your employer provides taxable benefits, such as a company car or private health insurance, HMRC may adjust your tax code to collect tax on these benefits. When this happens, you will pay slightly more tax each month.

If the value of your benefits changes during the year, your tax code and monthly deductions may change as well.

5. Back Pay or Bonuses

If you receive back pay or a one-off bonus, PAYE treats it as part of your income for that month. This can temporarily push your earnings into a higher tax band, resulting in higher tax that month.

The good news is that the system usually corrects itself in later months if your overall annual income does not exceed the higher bracket.

6. Student Loan or Pension Contributions

Deductions for student loan repayments or pension contributions can also affect your net pay. If your gross income changes due to variable hours or bonuses, these deductions will adjust automatically.

While these are not Income Tax changes, they can make your take-home pay appear inconsistent.

7. Starting or Leaving a Job

When you start a new job, your first few payslips may show unusual tax deductions if your employer has not yet received your previous PAYE details or P45. Once HMRC updates your record, your tax should correct automatically.

Similarly, when you leave a job mid-month, final pay calculations may differ from your usual tax due to accumulated allowances.

8. Underpaid or Overpaid Tax Adjustments

If HMRC identifies that you underpaid or overpaid tax in a previous year, it may adjust your tax code to collect or repay the difference gradually. This can cause higher or lower deductions for several months.

You will usually receive a letter from HMRC explaining this adjustment, along with the reason and amount involved.

When to Check Your Tax Code

While small monthly changes are often normal, you should check your tax code if your payslip deductions seem unusually high or low for more than one period.

Your tax code appears on your payslip under “Tax Code” or “PAYE Code.” You can verify it by logging into your HMRC Personal Tax Account online. If you believe it is incorrect, contact HMRC to review it.

A wrong tax code could mean you are overpaying or underpaying tax, which might lead to a refund or future bill.

Example Scenario

Imagine Sarah, who earns £2,500 per month. In June, she works overtime and earns an extra £400. Her total income that month pushes part of her pay into a higher tax bracket, so her tax deduction increases by £80.

In July, her pay returns to normal, and the PAYE system automatically adjusts her tax, reducing the deduction. Over the full year, Sarah’s total tax paid will still balance correctly based on her annual income.

How Employers and Accountants Can Help

If your employer uses payroll software, it automatically calculates PAYE each period based on HMRC’s latest tax tables and your tax code. Accountants and payroll professionals ensure that deductions remain accurate and report them through RTI (Real Time Information).

If you believe an error has occurred, ask your employer or payroll provider to check your records. They can confirm whether the change is due to income variations or a tax code adjustment.

How to Prevent Confusion

• Keep copies of your payslips and review them regularly.

• Check your tax code on the HMRC website or in your personal tax account.

• Inform HMRC promptly if your circumstances change (for example, if you start a second job or receive a benefit).

• Contact HMRC directly if you think your tax deductions are wrong.

Conclusion

If your payslip shows different tax amounts each month, it usually reflects changes in your income, tax code, or benefits. The PAYE system is designed to balance your tax across the year, so fluctuations are often temporary.

However, it is always wise to understand your payslip and check your tax code regularly. If you are uncertain, speak to your employer, accountant, or HMRC to ensure your tax is correct. Keeping informed helps you avoid surprises and ensures you pay the right amount over the course of the year.