The tax code assigned to each employee can have a significant impact on the amount of money deducted from their pay each month.  

Therefore, it is really important that you review and ensure that both your own and 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.  

It is your responsibility as an employer, to ensure that you are using the correct tax code for each employee 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 and Customs (HMRC) says you must report this information to them “using a Full Payment Submission (FPS) 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 soon as it is received.  

HMRC typically updates an individual’s tax code where:  

  • They receive income from an additional job or pension 
  • An employer tells HMRC that the employee has started or stopped getting benefits from their job 
  • They are in receipt of 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.  

Many of the latest payroll software and apps can assist with the automation, checking and updating of tax codes, so it is worth seeing how these could support your payroll processes as well.  

If you need assistance reviewing or updating employee tax codes or with the processing of your payroll, please contact your Seymour Taylor representative today or email or call 01494 552 100.   

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing on 09 August 2022. 

Posted in Blog news.