Tax codes for new employees
Employers that take on a new employee need to work out which tax code and starter declaration to use in their payroll software. Incorrect tax codes can lead to the new employee paying more tax than is due. HMRC has developed an online tool that can be used to work out any new employee’s tax code correctly.
In order to use the software, employers will require certain information from their new employee in order to ensure that the correct tax code and starter declaration information is entered on the payroll software. In most cases, all the necessary information can be found on the employee’s P45. It is important to remind new employees to bring this with them on their first day of work.
The required information usually comprises the following, the employee’s:
- date of birth
- full address
- start date
From the employee’s P45:
- full name
- leaving date from their last job
- total pay and tax paid to date for the current tax year
- student loan deduction status
- National Insurance number
- existing tax code
If the employee doesn’t have a P45, the necessary information can be collected by asking the new employee to complete HMRC’s new starter checklist. This information must be held in the employer’s payroll records for the current year and the 3 following tax years. Once the information has been collated, HMRC’s online tool can be used to work out the employee’s tax code.