Tax codes and Week 1 Month 1 – What does this mean?

If you have an employee with Week1/Month1 attached to their tax code (Usually shown as M1 after the tax code on their payslip) this means that when their pay is calculated, any pay they have received and any tax they have been deducted previously within the current financial year is not taken into consideration.

Tax is normally calculated on a “Cumulative basis” which means that each month/week they receive an extra month/weeks’ worth of free pay and 20% tax bracket allowances. These are added to all of the previous allowances they have received for each pay run since the beginning of the tax year on 6th April.

All of their pay is added together from that date too and the tax due is then calculated. Then the tax that they have already paid is deducted and what is outstanding is then taken from the current payroll. This means that the tax is always correcting itself to make sure they don’t over or under pay tax by the end of the financial year.

This is why on occasions an employee might be refunded some tax in the current financial year if their salary reduces significantly from previous months.

However, this does not happen on a week1/month1 basis and it is classed as ‘Non-cumulative’.

There could be a number of reasons for this treatment, one being that they have underpaid tax earlier in the financial year and HMRC have increased their tax code to compensate for this. The week1/month1 basis means that they will not have to pay back the underpayment in one lump sum and instead spreads this over the remaining months in that financial year.

Our A4G Payroll team can help make the payroll process pain-free and as simple as possible. Give us a call on 01474 853 856 or email info@a4g-payroll.co.uk for your a free non-obligation chat to discover how we can meet your payroll needs.