Millions of PAYE employees could see smaller pay packets from April 2026 under HMRC tax code changes 2026 that automatically strip employment expenses and higher-rate Gift Aid relief from PAYE codes.
The shift was confirmed in formal correspondence from HMRC to the Institute of Chartered Accountants in England and Wales (ICAEW) and the Chartered Institute of Taxation (CIOT) in January 2026.
The numbers that matter:
- Employment expenses over £120 are being removed from a PAYE code where HMRC’s internal data suggests the claim is no longer valid
- Higher-rate Gift Aid relief is being stripped where the same amount has sat in a code for three years or more with no Self Assessment filed
- HMRC stated that more than half of the employment expense claims it reviewed were ineligible — the rationale behind the automated removal programme
- A standard tax code for the 2026 to 2027 tax year stays at 1257L, giving a Personal Allowance of £12,570
- A code that drops from 1307L to 1257L can cost a basic-rate employee around £100 a year, or roughly £200 at the higher rate
Why HMRC is removing reliefs from PAYE codes
HMRC is moving towards what it calls Dynamic Coding — more frequent, data-driven adjustments to PAYE codes throughout the year, in place of one annual recalculation. Its aim is to keep codes accurate using payroll data submitted in real time, Self Assessment records, and compliance checks already held by the department.
A review of employment expense claims triggered the change. HMRC told ICAEW and CIOT that more than half of recent claims were ineligible. Many had been submitted by repayment agents on behalf of taxpayers who didn’t qualify, and some had been sitting in PAYE codes for years.
In correspondence to professional bodies, HMRC stated: “Where we have data that indicates that the tax-payers circumstances have changed since they applied for Employment expenses, we are taking action to correct that tax code.”
That same statement added that anyone who believes they remain entitled to Gift Aid higher-rate relief or employment expenses from April 2026 should submit their claim via the normal business-as-usual processes.
So that’s the catch. The removal is automatic. Reinstatement isn’t.
What the HMRC tax code changes 2026 actually mean
For employment expenses over £120 already coded, HMRC removes the expense from the 2026 to 2027 tax year code if any one of these applies:
- A taxpayer has no current PAYE income
- A full tax year employment gap has occurred since the expense was first claimed
- No Self Assessment return has been filed since the 2021 to 2022 tax year, where data suggests the expense should have been resubmitted that way
- An expense coded is higher than the figure declared in the taxpayer’s 2022 to 2023 Self Assessment return
For higher-rate Gift Aid relief, the test is stricter. Relief is only stripped when all of the following apply: the same amount has been coded for at least three consecutive years, and no Self Assessment return has been filed during that period.
HMRC’s own research suggests most regular charitable donations don’t continue beyond 12 to 18 months. So a static figure year after year is treated as a red flag.
A second change runs alongside this. From April 2026, HMRC is replacing many postal P2 ‘Notice of Coding’ letters with digital notifications via the HMRC app and Personal Tax Account.
Workers with simple PAYE circumstances may no longer receive a paper letter telling them their code has dropped, and the first sign of a change could be a smaller April payslip.
Who is most likely to be caught out
Workers most at risk from the HMRC tax code changes 2026 are those who claimed a relief once, never repeated the claim, and don’t file Self Assessment. That covers a lot of people.
NHS and healthcare workers paying professional body fees stand out. NMC registration costs £125 a year, GMC registration runs to £433, and HCPC registration is £82.31. Nurses and midwives can also claim a flat-rate £125 uniform and laundry allowance.
Ambulance staff get £185, police officers £140 plus their Police Federation subscription, mechanics £120, and firefighters £80. Airline pilots and flight crew sit at the top end at £1,022 a year.
Other groups affected include construction workers on trade-specific flat rates, teachers paying union or professional subscriptions, and anyone who claimed the COVID-era working-from-home allowance of £312 a year.
That homeworking relief has been abolished from April 2026, though backdated claims for earlier tax years remain valid within the four-year window.
What this means for take-home pay
The HMRC tax code changes 2026 hit take-home pay directly. Take a worker whose code shifts from 1307L down to 1257L: that single tweak cuts their tax-free Personal Allowance by £500 over the year.
At basic rate, that’s about £100 a year in extra tax. At higher rate, it’s closer to £200.
For employees with larger flat-rate allowances or professional subscriptions, the hit can run from a few hundred pounds up to £500 or more in a year. There’s a second sting.
When a fresh code lands part-way through the tax year on a cumulative footing, payroll software rebases tax owed from the previous April forwards. The catch-up can show up as one chunky deduction in the next pay packet.
You can check the position yourself before payroll runs the new code in April.
How to claim if this affects you
A first step is simple. Open the HMRC app or sign in to your Personal Tax Account at gov.uk, and look at the current code next to the one due to start in April. If the 2026 to 2027 number is lower than the 2025 to 2026 number, an allowance has been taken out.
Where the removal is wrong, the claim has to be put back in by the taxpayer — not the employer. Employers can’t contact HMRC about individual codes. Which route to use depends on whether you file Self Assessment.
Steps to take now:
- Compare your 2026 to 2027 tax code with your 2025 to 2026 code in the HMRC app or Personal Tax Account.
- If the code has dropped and you still incur the relevant work expense, gather supporting evidence — receipts, payslips showing the deduction, or proof of professional body membership.
- Submit a P87 form online if you’re a PAYE employee not in Self Assessment, or include the claim in the employment section of your Self Assessment return.
Since 14 October 2024, anyone making a standalone P87 claim has had to send HMRC proof to back it up — typically receipts, employer confirmation, or membership records.
An exception applies to flat-rate uniform, work clothing and tools allowances, where no specific evidence is needed. The four-year window for retrospective claims means the 2022 to 2023 tax year remains open until 5 April 2027.
Not sure which costs count? Tax Rebate Services sets out which employment expenses qualify for tax relief, from union and professional body fees to trade-by-trade flat rates.
Could you be owed a rebate?
Where HMRC has wrongly removed a legitimate expense from your code, you’re likely paying more tax than you need to from April 2026 onwards.
The relief isn’t lost — it just has to be reclaimed. For nurses, police officers, mechanics, teachers and anyone else with ongoing work-related costs, that can mean a few hundred pounds back over the previous four tax years plus a corrected code going forward.
HMRC’s Income Tax Helpline (0300 200 3300) can take queries on individual codes, though wait times are often long around the April changeover.
For workers with ongoing professional fees or flat-rate costs, a corrected code plus a backdated claim can add up to a meaningful sum — so it’s worth the few minutes it takes to check.
Key Takeaways
- From April 2026, HMRC is automatically removing employment expenses over £120 and higher-rate Gift Aid relief from PAYE tax codes where its data suggests the claim is outdated.
- The HMRC tax code changes 2026 are part of HMRC’s new Dynamic Coding approach and apply to the 2026 to 2027 tax year onwards.
- Workers with ongoing legitimate expenses — nurses, police officers, mechanics, pilots, teachers and others — may need to re-submit their claims to restore the relief.
- Postal P2 ‘Notice of Coding’ letters are being replaced with digital notifications for many taxpayers, so check the HMRC app or Personal Tax Account rather than waiting for post.
- The four-year backdating window means a fresh P87 claim (with evidence) or a Self Assessment entry can recover relief for earlier tax years going back to 2022 to 2023.
Tax Rebate Services News has been featured in Feedspot’s ‘100 Best Tax Blogs to Follow in 2026’, ranked at #48 (list last updated 11 May 2026).
