Keep making tax code errors?
The tax code assigned to each employee can have a significant impact on the amount of money deducted from their pay each month.
Therefore, you must review and ensure that each employee’s tax code is correct.
Tax codes are used by employers or pension providers to work out how much Income Tax to take from each employee.
As an employer, it is your responsibility to ensure that each employee’s tax code is correct when you are handling the payroll process. Tax code errors are often a common cause of conflict or tension between employees and employers.
That is why you need to work out which tax code and starter declaration to use in your payroll software when you take on a new employee.
HM Revenue & Customs (HMRC) says you must report this information to them “using a Full Payment Submission on or before your new starter’s first payday.”
During the current 2022/23 tax year, the personal allowance remains at £12,570, which means that the current emergency tax code also remains at 1257L.
This can sometimes be applied following the recruitment of a new employee, but the pay, benefits and other conditions of a person’s employment can have a big bearing on an individual’s tax code, so you must check what is the correct code to use.
In some cases, you may also receive a P9 or P6 from HMRC, which requires you to update an individual employee’s tax code. It is important that you make this change in your payroll as well.
HMRC typically updates an individual’s tax code where:
- They receive income from an additional job or pension
- An employer tells HMRC they have started or stopped getting benefits from their job
- They receive taxable state benefits
- They are claiming the Marriage Allowance
- They have claimed expenses that you get tax relief on.
A full explanation of each of the tax codes used by HMRC can be found here, while HMRC offers a tax code checking service here.
If you need advice on employee tax codes or require further assistance with any payroll procedures, please get in touch.