Going on unpaid leave does not automatically change your tax code — but it can create an unusual tax position when you return to work. Understanding how PAYE calculates tax on a cumulative basis will help you know whether to expect a windfall or a bill. Here is the full picture for 2026/27.
How PAYE Works on a Cumulative Basis
The PAYE (Pay As You Earn) system taxes your income on a cumulative basis across the tax year. Each pay period, your employer calculates:
- Your total pay to date this year
- Your total personal allowance to date this year (£12,570 spread evenly over the year)
- The difference — the taxable pay so far
- Tax due on that cumulative figure, minus tax already paid
This means if you earn nothing for several months, your personal allowance keeps accumulating — and when you return to work, there is a “buffer” of unused allowance that offsets the first earnings back.
Key Figures for 2026/27
| Amount | |
|---|---|
| Personal allowance | £12,570 |
| Weekly personal allowance | £241.73 |
| Monthly personal allowance | £1,047.50 |
| Standard tax code | 1257L |
| Emergency tax codes | BR, OT, W1/M1 |
What Happens Week by Week on Unpaid Leave
Assume Emma earns £30,000/year (£2,500/month) and goes on 3 months’ unpaid leave from July to September 2026.
April to June (3 months worked):
- Gross pay: £7,500
- Personal allowance used: £3,142.50 (3 × £1,047.50)
- Taxable pay: £4,357.50
- Tax paid: £871.50
July to September (3 months unpaid):
- Gross pay: £0
- Personal allowance accrues: another £3,142.50
- Tax paid: £0
October return to work — cumulative position:
- Year-to-date pay: £7,500
- Year-to-date personal allowance: £6,285 (6 months)
- Cumulative taxable pay: £1,215
- Tax due to date: £243
- Tax already paid: £871.50
- Overpaid by: £628.50 — Emma gets this back automatically in October’s payslip
From October onwards, Emma’s monthly tax reverts to normal as the year-to-date figures normalise.
When Unpaid Leave Can Cause Problems
| Scenario | What happens |
|---|---|
| Same employer throughout | Cumulative PAYE auto-adjusts — usually no action needed |
| You leave and rejoin on a new employment | New job may use M1/W1 basis until P45 is processed — you may temporarily overpay |
| Multiple employments | Each job has its own cumulative calculation — one could under- or over-deduct |
| Sabbatical spanning 6 April | Prior year’s accrued allowance is lost — year resets on 6 April |
| You receive a large payment on return (e.g. back pay) | Could push you into higher rate band in one month — may need to request spreading or wait for PAYE correction |
Emergency Tax Codes: What They Mean
An emergency tax code temporarily limits your personal allowance. Common codes:
| Code | What it does |
|---|---|
| BR | Taxes all pay at basic rate (20%) — no personal allowance |
| OT | No personal allowance, taxes at all rates |
| W1 or M1 | Week/month basis — does not use cumulative history |
These codes are applied when HMRC has insufficient information. If you receive one of these after returning from unpaid leave with the same employer, it is likely an error — contact payroll or HMRC to correct.
To request a tax code correction:
- Log in to your HMRC Personal Tax Account at gov.uk
- Call HMRC on 0300 200 3300
- Write to HMRC at Pay As You Earn, HMRC, BX9 1AS
National Insurance and Unpaid Leave
Weeks with zero earnings generate no NI credits. For most people this does not matter — but if you are concerned about your State Pension qualifying years:
- Check your NI record at gov.uk/check-national-insurance-record
- A qualifying year requires NI contributions on earnings above the Lower Earnings Limit (£6,396 in 2026/27)
- Weeks with no pay do not qualify
- Class 3 voluntary NI contributions (£17.45/week in 2026/27) can fill gaps — but only gaps up to 6 years ago (some older gaps have extended windows)
What to Do Before Taking Unpaid Leave
- Notify your payroll department — ensure they do not accidentally process emergency codes when you return
- Check your tax code — verify it is correct via your Personal Tax Account before leave starts
- Check your NI record — particularly if the unpaid leave is long-term
- Consider pension contributions — some employers allow paused or reduced pension contributions during unpaid leave; check your scheme rules
See our income tax and tax codes guide, National Insurance rates 2026/27, and Self Assessment guide.