How do we decide which tax code to use from form P46?
The tax code that is used for a new employee should normally be obtained from the P45 that was issued by the employee's previous employer. There are, however, a number of reasons why a P45 might not be produced, for example, because the new employee
- has not been employed before
- was previously self-employed
- has lost the P45
- was previously employed abroad
- has never worked in the UK before.
If there is no P45, either
- the new employee must be given a copy of form P46 to complete, or
- the employer must obtain and retain the necessary information in some other auditable format, such as an internal document or by email from the employee's line manager. The employee's signature is not required, although employers may wish to obtain it for their own purposes.
The only exceptions to the requirement for a P46, or alternative document, to be completed are
- students who are completing form P38(S), and
- "casual" employees who will be employed for no more than a week in the tax year.
Form P46 allows the employer to decide which tax code to apply for the new employee, based on the employee's response to three carefully worded statements.
Statement A: This is my first job since last 6 April and I have not been receiving taxable Jobseeker's Allowance or taxable Incapacity Benefit or a state or occupational pension.
Statement B: This is now my only job, but since last 6 April I have had another job, or have received taxable Jobseeker's Allowance or Incapacity Benefit. I do not receive a state or occupational pension.
Statement C: I have another job or receive a state or occupational pension.
The employee should tick one of the boxes adjacent to the statements and then sign and date the form. If the employer is completing the form from information obtained in another format from the employee, the boxes should be ticked appropriately. In that situation, the employee's signature is not required.
From the employee's responses, the employer can identify the correct tax code to use, as follows:
- If Statement A is ticked, the emergency code is used. None of the employee's personal allowance has been used so far in the tax year.
- If Statement B is ticked, the emergency code is used on a week1/month 1 basis. It is assumed that some of the employee's personal allowance for the current tax year has already been used.
- If Statement C is ticked, tax code BR is used. It is assumed that all of the employee's personal allowance has been set against the other job or pension.
- If none of the Statements is ticked and/or the employer does not have the information needed to tick any of the three boxes, code BR is used. In the absence of any information, it must be assumed that all of the employee's personal allowance is being used elsewhere.
The completed P46 is only sent to the tax office or filed online when the employee has been paid for the first time using the tax code identified by the P46. In due course, after investigating the employee's tax circumstances, the tax office may send a P6 coding notice that gives a different tax code to use.
Particular care must be taken where an employee is waiting to receive a P45 from the previous employer, perhaps because the employee left mid-month and the P45 is only issued at the month end. The new employer may decide not to issue form P46 initially but to process the first wages and wait for the P45 to arrive. In this situation, tax code BR must always be used for the first pay calculation, on the basis that the employer did not have the necessary information available to allocated the emergency tax code. When the P45 arrives, it should be applied from the second payday, using the rules for deciding which tax code to use from form P45.
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