Understanding Your Employee’s Tax
If your employee believes that they are paying the incorrect amount of tax on their earnings, the below information may help clear some things up for you:
Tax is payable based on earnings, regardless of age.
This means that it doesn’t matter if you are 16 or 99 years old, you will still pay tax if you earn over the threshold.
New starters should provide a P45 and complete a P46 declaration.
If payroll have not been provided with sufficient information regarding an employee’s tax code, the employee will be processed with no personal allowance (0T tax code) following HMRC guidelines – This means that the employee will receive no tax free allowance on their salary.
If an employee has more than one job, they may be issued with the basic rate tax code (BR) on one of their employments – This means that on the employment that is operating the BR tax code the employee will pay tax on everything they earn, and their tax free pay will be operated on the other employment.
The standard tax allowance for the current year is £12,570 before you pay tax. This is represented on the payslip with the tax code 1257L. HMRC may adjust this code due to employees’ personal circumstances (other income, previous underpayments etc). HMRC do not advise employers or agents of why tax codes vary, however they will advise the employee.
The annual tax allowance is split over the 12 months and equates to £1047.50 per month. The tax allowance is cumulative so each month of the tax year £1047.50 gets added to the tax free allowance until March (month 12 when it reaches the full £12,570.00.
If your employee believes their tax is incorrect
If your employee believes they are on the wrong tax code, or if their circumstances have changed and they believe this will affect the amount of tax they are due to pay, then they can contact HMRC and request that they review their tax code and potentially split the code between this and any other incomes that your employee may have (i.e. other jobs, pension, benefits etc.).
HMRC Contact Number: 0300 200 3300
HMRC Tax code Notifications
Changing a tax code must be done via notification from HMRC. It is not a decision that can be made by employers or dhPayroll, and legally employers must operate the tax code provided by HMRC.
Employers / Payroll agents always need to wait until HMRC have sent us a notification to change an employee’s tax code.
Any tax that has been deducted that wasn’t due to be paid, will be returned to the employee through the payroll as a tax refund.
HMRC offer lots of helpful advice on employee tax codes, which can be found on the following link: https://www.gov.uk/tax-codes