As an employer, it is important to know that every working person in the UK is paid under the PAYE system, and are assigned a tax code by the HMRC. The code is made up of a number followed by a letter suffix. However, there are some ‘non-standard’ codes that can be used in exceptional circumstances.
The code reflects how much tax should be deducted from an employee. As an employer, it is crucial to calculate this. If you wish to seek advice on tax codes click here to see if our business advice would be beneficial to you.
The HMRC will send you a PAYE Coding Notice just before the start of a tax year, or they will notify you of any changes to your tax code within the tax year. The information they provide will tell you what your tax code is and how it has been calculated. As a result of this, the employer or pension provider can then use the tax code to work out how much tax to take from the employee. But do they have the correct tax codes? And do you know what to do?
As an employer, you should be aware that when a new employee is hired you usually work out their tax code using their P45 form. You should always update your employee’s tax code at the beginning of a new tax year. If any changes are made HMRC will get in touch and then your payroll records can be updated.
For employers, the most common tax code for 2016 to 2017 is 1100L; this is used for people with one job and no untaxed income. This tax code highlights that employees can earn up to £11,000 per year before it is compulsory to pay tax.
It is important for employers to know if their employees undertake any other paid work, or if they have taxable benefits. If an employee completes the form accurately they can be assigned the correct tax code.
If you wish to seek more information on PAYE tax codes call us on 01623 490120 or email