Why Did My Tax Code Change After My Commission Payment?

Every time your employer runs payroll, they send a Full Payment Submission (FPS) to HMRC through the Real Time Information (RTI) system. This happens immediately — not at the end of the tax year.

HMRC uses this data to estimate what you will earn across the full year. If a commission payment changes that estimate significantly, HMRC may issue a new tax code to your employer, sometimes within days of the payment being reported.

This is the system working as designed. Before RTI was introduced in 2013, tax code errors could go unnoticed for months. Now, corrections happen faster — which is good for accuracy but can feel unsettling when your code changes unexpectedly.

Commission stacks on top of your base salary for tax purposes. If your base salary is £42,000 and you earn £12,000 in commission during the year, your total taxable income is £54,000. That puts £3,730 of your earnings into the higher-rate band (40% tax on income above £50,270).

The annual tax bill is the same whether the commission arrives in one lump or is spread across 12 months. But the monthly experience is very different.

If the commission lands in a single month, the PAYE system needs to collect higher-rate tax on that payment and catch up on any months where you were undertaxed relative to your new projected annual income. This is the cumulative basis doing its job — and it is why one payslip can look dramatically different from the rest.

Let us walk through a real scenario:

Sarah earns a £40,000 base salary. In month 11 (February), she receives a £15,000 commission payment, making her total pay for the year £55,000.

For the first 10 months, Sarah paid tax as though she earned £40,000 per year:

In month 11, her gross pay is £3,333 + £15,000 = £18,333. But her tax deduction is not simply 20% of £18,333. The cumulative system recalculates tax for the entire year to date:

• Total gross to date: £48,333 (10 months of £3,333 + this month's £18,333)
• Annual projected income: £55,000
• Tax due on £55,000: £8,486 per year (£12,570 at 0%, £37,700 at 20%, £4,730 at 40%)
• Tax already paid in months 1-10: £4,570 (10 × £457)
• Tax due this month: £8,486 × 11/12 − £4,570 = £3,213

That £3,213 tax deduction on a single payslip looks terrifying compared to the usual £457. But it is mathematically correct — the system is collecting the right amount of annual tax by spreading the catch-up into this month.

Check your own payslip against HMRC rates →

Several things can change on your payslip after a large commission:

Your tax code number drops — for example, 1257L becomes 1100L. This means HMRC has reduced your personal allowance, usually to collect an estimated underpayment for the current year. The number in the code multiplied by 10 gives your approximate tax-free amount.

W1 or M1 appears after the code — for example, 1257L M1. This means HMRC has switched you to a non-cumulative basis. Each month's tax is calculated independently, as if that month's pay is what you earn all year. This often results in higher tax in the short term.

BR replaces your normal code — this means all your pay is taxed at the basic rate (20%) with no personal allowance. This sometimes happens if commission is processed through a secondary payroll or if HMRC has allocated your allowance elsewhere.

A K code appears — for example, K500. This means your taxable benefits or underpayments exceed your personal allowance. The K amount is added to your taxable income. This is less common for commission alone but can happen when combined with benefits in kind like a company car.

Most commission-related code changes are correct, but not all. HMRC's system makes errors in two common scenarios:

One-off commission projected as recurring. If you receive a large one-off commission in April, HMRC may assume you will receive the same amount every month for the rest of the year. This inflates their estimate of your annual income, leading to an unnecessarily aggressive tax code. The fix is to call HMRC and explain that the payment was a one-off.

Stale employment data. If you have recently changed jobs, HMRC may still have your old employer's data in the system. This can lead to incorrect income estimates when combined with your commission income. Check your personal tax account to see if HMRC shows any employment records that should have ended.

Underpayment collected too aggressively. HMRC can collect up to £3,000 of underpaid tax through your tax code. If they are trying to collect more than this, or if the underpayment relates to a previous year you have already settled, the coding is wrong.

Three ways to verify, from quickest to most thorough:

1. Use the payslip checker. Enter the figures from your payslip and we will compare each deduction against HMRC rates for your tax code and pay period. This takes about a minute and will flag anything that looks off. Try it now →

2. Check your HMRC personal tax account. Sign in at gov.uk/personal-tax-account. Under "Pay As You Earn (PAYE)" you can see your current tax code, how HMRC calculated it, and what estimated income they are using. If the estimated income looks wrong, you can update it there.

3. Read your coding notice. HMRC sends a P2 coding notice (now usually digital) whenever they change your code. It breaks down exactly what allowances and deductions make up the code. If you have not received one, check your personal tax account — HMRC now sends digital notifications rather than letters for most changes.

This is the scenario that catches the most commission earners by surprise.

If your base salary plus commission pushes your adjusted net income above £100,000 in a tax year, you start losing your personal allowance. For every £2 of income above £100,000, you lose £1 of the £12,570 allowance. By £125,140, it is completely gone.

This creates an effective 60% tax rate on the slice between £100,000 and £125,140:

• 40% higher-rate income tax on the income itself
• Plus 20% because the lost personal allowance means £1 of previously tax-free income is now taxed at basic rate for every £2 you earn above £100k
• Plus 2% employee National Insurance
• Total effective marginal rate: 62%

Example: Emma earns £85,000 base salary. In March she receives a £20,000 commission, making her annual income £105,000. She is £5,000 over the £100,000 threshold, so she loses £2,500 of personal allowance (£5,000 ÷ 2 = £2,500). That lost allowance costs her an extra £500 in tax (£2,500 × 20% basic rate) on top of the 40% she already pays on the commission itself. Her effective marginal rate on that last £5,000 slice is 60% income tax alone, or 62% including employee NI.

Note for Scottish taxpayers: The personal allowance taper works the same way regardless of where you live in the UK — it is a UK-wide rule, not set by the Scottish Government. However, Scottish higher-rate tax starts at a lower threshold (£43,662 above the personal allowance in 2026-27 vs £50,270 for the rest of the UK), so Scottish commission earners may hit 42% tax on commission at a lower income level even before the taper kicks in.

See the full breakdown for a £105,000 salary →

If your commission regularly pushes you above (or close to) £100,000, a personal pension contribution can bring your adjusted net income back below the threshold and restore some or all of your personal allowance.

How it works: Personal SIPP contributions are deducted from your adjusted net income for the purpose of calculating the personal allowance taper. A contribution large enough to bring your income back below £100,000 effectively gets tax relief at 60%, not just 40%.

Worked example: Emma has £105,000 income. If she contributes £5,000 (gross) to a SIPP, her adjusted net income drops to £100,000. She:

• Pays £4,000 into the SIPP (the provider claims 20% basic-rate relief, adding £1,000, making the gross contribution £5,000)
• Claims back a further £1,000 through Self Assessment (higher-rate relief: 40% − 20% already claimed)
• Restores £2,500 of personal allowance, saving an additional £500 in tax
• Total tax benefit: £2,500 on a £4,000 out-of-pocket contribution — an effective 62.5% relief rate

The annual pension allowance is £60,000 (or 100% of your earnings, whichever is lower). You can also carry forward up to three years of unused allowance if you have not contributed in previous years.

Important: This is a legitimate, well-known tax planning strategy recommended by financial advisers. It is not avoidance — it is using the pension system exactly as designed. However, pension contributions are locked away until age 57 (rising to 58 in 2028), so only contribute money you will not need before then.

If you regularly receive large commissions, it is worth comparing SIPP providers that make it easy to contribute lump sums and claim higher-rate relief. If you need access to the money before retirement age, a Stocks and Shares ISA (up to £20,000 per year) offers tax-free growth with full flexibility.

If your tax code has changed after a commission payment, here is the step-by-step:

• Step 1: Check the code on your latest payslip. Note whether it has W1, M1, or X after it.
• Step 2: Run the payslip checker with your actual payslip figures. We will tell you whether each deduction matches HMRC rates.
• Step 3: Log in to your HMRC personal tax account and check the estimated income figure. If it looks too high (because HMRC is projecting a one-off commission as recurring), update it.
• Step 4: If the code is genuinely wrong, call HMRC on 0300 200 3300. Have your NI number, employer PAYE reference, and latest payslip ready.
• Step 5: If your total income for the year is near or above £100,000, consider whether a SIPP contribution before 5 April could restore your personal allowance.

Most commission-related tax code changes resolve themselves by year end through the cumulative system. The payslip that looks wrong in month 11 is usually balanced out by a lighter deduction in month 12. If you have genuinely overpaid, HMRC will issue a P800 after the tax year ends, or you can claim through Self Assessment.