New PAYE System Sparks Overpayment Concerns for UK Workers

The new PAYE system implemented by Her Majesty’s Revenue and Customs (HMRC) for repaying the High Income Child Benefit Charge (HICBC) has raised significant concerns for thousands of UK workers with fluctuating incomes. Launched in October 2025, this digital service was intended to streamline tax processes for approximately 440,000 individuals responsible for the charge. Instead, it has created complications for commission-based workers, bonus earners, and those with variable salaries.

The central issue lies in how PAYE deductions are calculated. Under the new system, these deductions are based on estimated annual income rather than actual earnings. This means that individuals whose incomes vary throughout the year may face unexpected overpayment situations. As stated in HMRC’s published tax guidance, “PAYE HICBC deductions are based on estimated annual income, so if your income fluctuates, you may be over- or undercharged until HMRC reconciles your actual year-end income.” Consequently, many employees could be repaying more than they owe for several months before any adjustments are made.

The HICBC affects anyone earning over £60,000 annually who receives child benefit. For every £200 earned above this threshold, families are required to repay 1% of their child benefit, culminating in a full repayment at an income of £80,000. For families typically receiving £1,331 annually in child benefit, this could translate to monthly deductions exceeding £225, potentially totaling over £2,700 taken from salaries before any year-end reconciliation.

Workers transitioning from self-assessment to PAYE face even more severe challenges, including the risk of double deductions within a single tax year. The Institute of Chartered Accountants in England and Wales has warned that “taxpayers who need to pay HICBC for both 2024/25 and 2025/26 may end up with two sets of HICBC charges in one year’s PAYE code.” This situation particularly impacts those who filed their 2024/25 tax return before opting into the PAYE system.

Sales professionals, estate agents, and individuals earning substantial commissions encounter unique difficulties. While their base salaries may fall below the £60,000 threshold, additional bonuses or commissions can push their total income beyond this limit. Tax advisers emphasize that “it applies to total adjusted net income, including bonuses, so if these raise your income above the threshold, the charge still applies through PAYE.”

Those on fixed-term or part-year contracts also face similar pitfalls. Tax experts caution that “if you’re employed only part of the year, you may be overcharged unless you update your income estimate or file a reconciliation after the year ends.” Workers choosing to opt into PAYE partway through the tax year may experience compressed repayment schedules, which can lead to higher temporary deductions. For example, an individual opting in during October 2025 would have only six months to repay the full year’s charge, effectively doubling the monthly impact on their take-home pay compared to someone enrolled from April.

Given these complexities, tax professionals advise workers with variable incomes to carefully evaluate whether the PAYE system aligns with their financial situations. Those with significant bonuses, freelance side incomes, or rental properties might find that self-assessment provides more control and faster corrections. Workers can still opt to pay the charge through self-assessment instead of PAYE, provided they register before January 31 following the tax year. This allows for precise calculations based on actual annual income rather than estimates.

Another strategy includes increasing pension contributions or charitable donations through Gift Aid to reduce adjusted net income below the £60,000 threshold, thereby avoiding the charge altogether. HMRC anticipates that the new system will incur costs of £25 million over four years starting in the 2026-27 tax year. These expenses are likely attributed to increased administration related to overpayment reconciliations and taxpayer inquiries.

The child benefit system currently supports families by providing £26.05 weekly for their first child and £17.25 for each additional child. For a family with two children, this amounts to £2,252 annually—funds that higher earners may gradually repay as their incomes rise. Financial advisers emphasize the importance of continuing to claim child benefit, even if repayments are necessary, as registration secures vital National Insurance credits that contribute toward State Pension entitlements.

As the PAYE system continues to be scrutinized, workers are encouraged to stay informed and proactive about their income reporting to mitigate the risks associated with fluctuating earnings.