Tax code changes for employment expenses and gift aid relief

As reported by ICAEW

From April 2026, employment expenses and gift aid will be removed from the tax codes of some taxpayers where HMRC’s data shows that they are unlikely to be accurate or relevant.

Employers and pension providers use a person’s tax code 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. 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 has informed ICAEW that employment expenses of over £120 will be removed from the person’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 (SA) 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. 

  
  

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 says 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.