A Guide To UK Tax Codes For New Employees
When a new employee is hired, they will need a tax code. However, the tax code for the new employee will depend on whether or not a valid P45 has been handed to the new employer. In this article, we are going to talk about the UK tax codes for new employees.
UK Tax Codes With A P45
If the new employee has successfully provided the employer with a valid P45, then the employer should use the tax code that is stated on the P45.
UK Tax Codes Without A P45
If the new employee does not have a P45 from their last employer before their first payday, this is where things get a little more complex. If an employer has not received a P45, the new employee should be asked to complete the HMRC starter checklist. After doing this, the answers on the form will inform the employer which PAYE tax code should be used on the new employee’s first payday.
This will be based on the statement the new employee has selected A, B, or C.
Employee Statements
Statement A: This is my last job since last 6 April, and I have not been receiving Job Seekers Allowance, Employment and Support Allowance, taxable Incapacity Benefit, State or Occupational Benefit.
If the new employee chooses statement A, the tax code that will be used is 1185L on a progressive basis. This will allow the employee the standard tax-free personal allowance of £11,850 for the coming tax year (correct at the current time of writing).
Statement B: This is now my only job, but since last 6 April I have had another job or received taxable Jobseeker’s Allowance, Employment, and Support Allowance or taxable Incapacity Benefit. I do not receive a State or Occupational Pension.
If statement B has been selected, the necessary tax code will be 1185L, and this will be used on a week 1/month 1 basis. This is often a temporary code, and HMRC will likely issue a revised tax code soon after this has been submitted.
Because the employee has declared this to be their only job, they should be entitled to the 1185L tax-free allowance of £11,850 for the tax year (correct at the current time of writing). The only issue here is that because the new employer does not have any information about the previous pay and tax from the previous employer, they are unable to calculate the tax liability.
Statement C: As well as my new job, I have another job or receive a State or Occupational Pension.
If the new employee has selected statement C, the tax code BR will be applicable. This is because they have stated that they are receiving alternate income and it is then assumed that they are already claiming their tax-free allowance for the year. So, the BR code lets the employer know that they need to take the basic rate of 20% for tax against the full earnings of the new employee.
Late P45 Or Checklist
If an employee gives the employer a late P45 or checklist after their first payday, the action to take will depend whether a tax code has been given from HMRC.
If HMRC has sent a code, use the code they have sent you. If HMRC haven’t sent you a code and you receive a late P45, update the employee details within your payroll software. You should do the same if there is a late starter checklist.
We hope you find this simple guide useful, but if you need more information or looking for a qualified accountant to help with your payroll needs, then get in touch with us today on 01753 840 188.