Quarterly News

New employees but no P45?

An employee who starts work without a form P45, showing the pay, tax deductions and 'tax code' from their last employment, has to complete and sign a form P46. This form enables the new employer to decide on the appropriate tax code to be used. This will be used until the individual's records arrive at the new employer's tax office at which point a new tax code may be issued to reflect their circumstances.

The form explained

A - The employee hasn’t worked this year, or has not previously worked at all.

The employer will use the tax code 522L which means that the employee can receive pay of £435 a month without paying any tax. As the code is applied cumulatively, back to the beginning of the tax year, if they start working in December they can receive 9/12ths of the full tax year’s allowances of pay (£3,915) before paying any tax at all.

B - The employee has already worked or claimed Jobseeker's Allowance this tax year but hasn't received or has lost the P45.

These employees are taxed using the 522L tax code, but on a 'Month 1' basis. This means that each month is taxed without reference to any previous earnings. They will be taxed on any earnings above £435 a month. They may suffer tax deductions at a higher rate than normal, until their records are updated and HMRC issue them with the correct cumulative tax code.

C - The employee has another job or receives a pension.

They will be taxed at the basic rate of tax (22%) on their pay.

D - Students who took out a loan whilst undertaking higher education from 1 September 1998 are required to repay this loan as a deduction from their pay when they start working.

The loan repayments are not due unless the employee earns £1,250 a month. The repayments are due on pay above £1,250 at a rate of 9%.

When employing someone new the last thing you want to do is to take too much or too little tax from them. By using the P46 form correctly this ongoing problem should be avoided.

The form P46 can be obtained at the HMRC website.

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