unexpected change in the tax or National Insurance deductions

Changing Jobs and New Employments

You may query an unexpected change in the tax or National Insurance deductions when you change jobs; or you may think you are paying too much tax, or are due a refund.

What you need to know The tax codes for someone changing their main job should come from form P45. This form should be given to you by your former employer.

The appropriate page of the P45 should be given to the new employer. Sometimes the issue of a P45 by the former employer is delayed. This can mean that the new employer uses an emergency code.

People returning to work from benefits may receive a P45 from the jobcentre. The tax code on this P45 needs to be checked to ensure that it is appropriate. In particular, watch out for Month 1 and Week 1 codes – these may be difficult to spot as they are no longer highlighted on HMRC P2 coding notices  so you may need to ask your employer, or HMRC. These are temporary codes, and could mean that you will pay too much tax. You should then phone HMRC to get your code changed to a cumulative code.

If you have no P45, perhaps because you were on a career break or self-employed before you started employment, then the employer should use a Starter Checklist to work out what tax code to use. (Under RTI, the Starter Checklist replaces form P46).

Tax codes on return to work can be affected by the receipt of taxable out-of-work benefits.

Employers who are in Real Time PAYE Information (RTI) for PAYE no longer send P45 forms to HMRC. Instead information about joiners and leavers is included in their RTI returns.

Employees still need to provide new employers with information for the Starter Checklist (i.e. confirm that this is their only or main job etc.) or give their new employer a P45 from their previous employer.

What might go wrong?

P45 information may be processed incorrectly As an employee, you should ensure not only that the correct page of the P45 is handed to your current employer, but also that the P45 is processed correctly. If the form has been correctly processed, your previous pay and tax details, along with your previous PAYE code should be shown on your new payslips and the year end form P60, or P45, if you leave before the end of the tax year.

Your tax codes may be incorrect If you change jobs or take an additional job, your tax codes may no longer be correct. You may be receiving your tax-free personal allowance more than once – and so underpaying tax, or you may be paying too much tax.

What action should I take? If you think the P45 has not been processed correctly then you should take this up with your employers. If this does not resolve the position, then you should contact HMRC on 0300 200 3300.

PAYE and tax codes

EMPLOYEE TAX CODES AND NATIONAL INSURANCE

If you are an employee then your employer must operate PAYE (which stands for Pay As You Earn). This is a way of collecting your income tax and National Insurance from your pay as you go along, instead of sending an annual tax return and sorting out your own tax directly with HMRC.

Tax is deducted each pay day from your pay before you receive it and by the end of the tax year, you should have paid the right amount of tax. Sometimes there are mistakes and you may pay too much or too little tax.

PAYE is only a method of collecting tax. If there are any errors and the wrong amount of tax is collected, you, the employee, are usually liable to pay any unpaid tax. This is one reason for taking time to understand how PAYE works – you are more likely to spot errors and avoid underpaying or overpaying tax.

The key to paying the right tax as an employee is having the right PAYE tax code so it is important to check that the tax code your employer uses is the right one for you. If you think your tax code is wrong, you should contact HMRC. You can do this on the Income Tax Helpline 0300 200 3300

Where your PAYE tax code comes from

The PAYE code used by the employer may come from a number of different places:  they will either be calculated and issued by HMRC or the employer will use a standard code according to rules set out for them by HMRC.

If you change jobs, the new employer should normally use the same code as your previous employer. If you have come from a previous employment (or received a taxable state benefit), your old employer (or the DWP) should give you a form P45 to give to your new employer. The new employer should use the tax code which is shown on the P45.

If you do not have a P45, (perhaps because your previous employer is late issuing it, this is a second job, or you were previously self-employed, a student, or on a career break) then the employer should decide which PAYE code to use by using the starter checklist . Your new employer will ask you a number of questions to complete this form.

It is important that the starter checklist is correctly completed, or you could pay the wrong amount of tax. Your employer should ask you to confirm which of the three options set out under ‘employee statement’ applies to you.

Your employer will then use your answers to determine which of three tax codes to use. It is most important that you tell your employer if you have any other paid work, taxable benefits or pension income. If the form is completed correctly, then for most people this should mean the correct tax code is used.

Employers may also make adjustments to reflect Budget changes to some tax codes at the start of a tax year. For example, if you had the usual 1150L tax code for 2017/18 and no code is reissued before the start of 2018/19 tax year, your employer will automatically amend the code to reflect the Budget increase in tax free personal allowance that applies for 2018-19 so your new code will be 1185L.

If you believe your tax code is wrong you should contact HMRC who will issue your employer with a revised tax code as required. This can be done by phone – 0300 200 3300

Almost all employers will now be operating PAYE in Real Time. Under Real Time PAYE Information (RTI) employers report pay and tax details to HMRC each time you are paid.

Understanding your tax code

TAX GUIDE FOR EMPLOYEES GUIDE

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Introduction As an employee, you need to understand and check your PAYE tax codes. HMRC expects you to do this. If you don’t check your tax code, you could face an unexpected tax bill, be paying too much tax now, or miss out on refunds from earlier years.

Information About 15% of PAYE taxpayers are likely to pay an incorrect amount of tax over the tax year. HMRC double checks the position at the end of each tax year and sends out a P800 tax calculation to any employee who appears to have paid the wrong amount of tax.

What you need to know The standard tax codes – 1185L and BR The standard PAYE tax code for your main job in 2018-19 is 1185L (2017/18 – 1150L). It represents £11,850 of tax-free income.

For a second or subsequent job the standard code is BR – Basic Rate, a 20% deduction. There are some circumstances in which these codes will not result in the correct deduction of tax over the tax year. This is considered in the ‘what might go wrong?’ section below.

The 1185L code is usually applied on a cumulative basis. This means that your tax position is recalculated each pay day using total pay to date and free-pay to date during the tax year. As a result, variations in income between months are averaged out. On a 1185L cumulative code, the tax you pay on your main job should be correct, so long as you earn at least £11,850 in your main job, or, if you earn less than £11,850 in the year, this is your only taxable income.

If you have a state pension There are no standard codes for people with a state pension. Your code will be affected by any state pension you have as well as any occupational pension.

Month one and week one codes If you start work as an employee part-way through a tax year, you may initially be put on a Week One, or  Month One code. This may not be clear from your payslips or PAYE coding notice. This code will not always produce the correct answer. If you think you may be on a Week One or Month One tax code, you should ask your employer and contact HMRC. If you are still on this code at the end of the tax year, you should contact HMRC.

What might go wrong? There are a number of circumstances in which the standard combination of 1185L code on a main job and BR code on any subsequent job may not work. These include:

1) If you earn less than £11,850 in your main job and have more than one job Example: Freda has two jobs. In her first job she earns £8,000, and in her second job she earns £5,000. Overall she is due to pay tax on £13,000 of income. But, the standard codes of 1185L for the main job and BR for the second job mean that she would pay too much tax during the year.

This is because she is earning less that £11,850 in her main job. The main job has £11,850 of tax-free pay allocated to it, but she can only use £8,000 of this. This means that £3,850 (£11,850 – 8,000) of her tax free pay is unused.

Freda can either wait until the end of the tax year and ask for a refund, or ask HMRC to divide her tax-free pay between jobs. If Freda decides to split the tax-free pay between jobs, then she needs to take care that the split is optimal throughout the year and to check that no mistakes are made when the codes are adjusted.

2) You have work expenses to claim as an employee If you have incurred work expenses up to £2,500 that are not reimbursed by your employer, or you are due a standard expenses allowance, then you will have an addition to your tax code. See the employee expenses section on left hand menu for details.

What action should I take? For general queries, see the information on Gov.uk designed to help you check your tax code at https://www.gov.uk/tax-codes/numbers-in-your-tax-code-what-they-mean .

If this does not resolve the problem, you should phone HMRC on 0300 200 3300. Have your National Insurance number and payslip to hand.

If you have tried to resolve the position unsuccessfully with HMRC, and are on low income, you may contact the TaxAid helpline

Further information There is information on how tax codes are worked out for pensioners and employees on the TaxAid website at: Employee tax codes and National Insurance Your personal allowance