New employees, changes and special situations

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New employee: using the right tax code

New employee: using the right tax code

To make sure you deduct the right amount of tax from an employee's pay you'll need to use the right tax code. You'll find this on a new employee's form P45 Details of employee leaving work if they give you one. If they haven't got a P45 you'll need to follow the instructions on form P46.

Once you know the right tax code you enter it into payroll software or our free P11 Calculator on the Employer CD-Rom to work out the deductions for you automatically. You can also use paper methods, but this is more time consuming and prone to error.

This guidance - which should be read in conjunction with our related guide 'Taking on a new employee' - will help make sure you use the right code for a new employee.

On this page:

Tax code when employee has a P45
Tax code when no P45 - form P46 completed
Tax code when P45 received after employee's first pay day
Changes to your employee's tax code
Start of a new tax year - new tax codes
Help and advice
More useful links

Tax code when employee has a P45

If your new employee has a P45 you'll need to:

Check whether it's for the current tax year by looking at box 4 which shows the date they left their last employment. A tax year runs from 6 April to the following 5 April.
Check that the P45 figures are correct and use the correct figures if they're not. For the detail on how to do this read our guide 'Taking on a new employee' if you've not yet done so - link below.
Enter the tax code shown in box 6 into your software/the P11 calculator or in box K if setting up a paper P11.
If the tax code only has numbers, add the letter T to the end of it when you put the code on the P11. But don't alter their P45.

Taking on a new employee

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New employee - P45 is for an earlier year

If the P45 shows a leaving date in an earlier tax year you can't use the tax code on their P45 - instead you'll need to use the 'emergency tax code' on a week 1 month 1 basis (more below) in either of the following cases:

if their P45 is for a year which precedes last year's tax year - eg if the current tax year is 2008-09 and the tax year on their P45 is 2006-07 or earlier
if you take on a new employee after 24 May and the P45 is for last year's tax year or earlier - eg employee starts on 25 June 2008 and the P45 leaving date is in the 2007-08 tax year or earlier

To find out more about week one or month one tax codes read the guide 'Understanding employee tax codes'

Understanding employee tax codes

The emergency tax code for the tax year 2008-09 is 543L. It changes each year and is also published in the current tax year's version of our booklet E12, 'PAYE and NICs rates and limits'. You'll find this on our website and on the latest Employer CD-Rom we sent you, or you can order paper copies.

Check current PAYE rates and limits including emergency tax code

New employee starts between 6 April and 24 May - P45 from last tax year

If you take on a new employee between 6 April and 24 May inclusive and they give you a P45 from the last tax year, you can use this but you'll usually have to add some figures to it first – even if using the P11 Calculator or payroll software. This is because the tax-free amount changes in most tax years so their tax code may be out of date.

To find out how much to add you'll need to follow the instructions in the current year's booklet E12 'PAYE and NICs rates and limits'. You'll find this booklet on our website and on the latest Employer CD-ROM we sent you.

Get the current instructions for amending a tax code number

If you still don't know which code to use and you’re a new employer or have fewer than three years’ payroll experience, call our New Employer Helpline on Tel 0845 607 0143. Otherwise call the Employer Helpline on 08457 714 3143. Both helplines are open from 8.00 am to 8.00 pm Monday to Friday and from 8.00 am to 5.00 pm on Saturdays and Sundays.

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Tax code when no P45 - form P46 completed

If your employee doesn't have a P45 they'll need to complete form P46. (Read our guide 'Taking on a new employee' for more on this.)

In the Tax code used part of section two on the P46:

tick box A, B or C in line with the box ticked in section one
enter the tax code indicated in the table below
enter this in the 'Tax code used' field of your software or Box K on the P11

Box ticked on form P46	Tax code you should use (2008-09)
A	Emergency tax code 543L on a cumulative basis
B	Emergency tax code 543L on a week one month one basis
C	BR cumulative
No box ticked	BR cumulative

Taking on a new employee - read the details

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Tax code when P45 received after employee's first pay day

If an employee gives you a P45 after their first pay day and you've already received the employee's tax code from your HM Revenue & Customs (HMRC) office, destroy the P45.

If you've haven't yet received a tax code for them proceed as follows:

If you use payroll software

Check the P45 figures and decide which tax code to use by following the instructions in the earlier section Tax code when an employee has a P45.

Follow the instructions on your software to update your employee's details - most payroll packages should do this for you automatically but you'll need to check this.

If you use the P11 Calculator

If you use the P11 Calculator on the Employer CD-Rom you'll need to:

check the P45 figures and decide which tax code to use by following the instructions in the earlier section Tax code when an employee has a P45
enter the employee's new tax code in the employee database
adjust the employee database entries for the week they started to reflect the Gross pay and Total tax to date figures from the P45, or use the correct ones if the P45 found errors

If you complete a paper P11 and the employee doesn't have a week one month one tax code

unless the employee's P45 shows a week one month one tax code - enter in column 3 of the P11 on the line immediately above the one you used for the employee's first payment the 'Total pay to date' shown at item seven of the P45 (use the correct amount if the P45 check found any errors)
similarly, in column six on the line immediately above the one you used for the employee's first payment enter the P45 'Total tax due' figure shown at item seven (or the correct amount if the P45 check found any errors)
on the next pay day include these amounts in the 'Total pay to date' and 'Total tax due' figures that you enter at columns three and six of the P11

The entries in columns three and six will now be fully up to date and correct to carry forward.

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Example:

An employee without a P45 starts in week 34 and you ask her to complete a P46. She completes the P46 and ticks statement B. In accordance with the P46 instructions you start to operate an emergency code on a week one month one basis (543L X).

In weeks 34 and 35 you pay her £700 and enter this amount on the P11 at column two for each of those weeks ('Pay in the week or month').
In weeks 34 and 35 you deduct tax of £119.07 and enter this amount on the P11 at column 7, Tax deducted or refunded in the week or month, for each of those weeks.

Before the next pay day, week 36, the new employee gives you her P45 which shows that:

her tax code is 543L, emergency on a cumulative basis
she has already received £13,000 of pay to date this tax year
she has already paid tax of £1,959.99 this tax year

You check the date of the P45 and the figures - everything is correct.

In order to update the P11 to take account of the newly received P45 figures you proceed as follows:

at week 33 (the week before the employee started) in column three ('Total Pay to date) you enter £13,000
at week 33 (again the week before the employee started) in column six ('Total tax due date') you enter £1,959.99

At week 36, the first pay day since you received the P45, you make your next payment and further update the P11 as below:

you pay the employee £700 at week 36 and enter this amount at column two
you then add up all the pay figures from column two and enter the 'Total pay to date' into column three - this is £13,000 (from the P45) + £700 (week 34) + £700 (week 35) + £700 (week 36) = £15,100
next you work out what the total tax due to date on £15,100 should be at week 36
this comes to £2,266.80 arrived at as follows: £15,100 less free pay of £3,765.96 (£104.61 x 36) = £11,334.04 taxable at 20 per cent = £2,266.80
you enter £2,266.80 at week 36 column six ('Total tax due to date')

Finally you need to calculate what tax, if any, is actually due at week 36 taking into account what has already been deducted so far. You work this out as shown below:

£2,266.80 (total tax due on £15,100) less £1,959.99 (tax shown as already paid on the P45) less £119.07(deducted at week 34) less £119.07(deducted at week 35) = £68.67 due for week 36
you therefore enter £68.67 at week 36 column seven ('Tax deducted or refunded in the week or month')

Your P11 entries are now fully up to date and correct to carry forward.

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If you complete a paper form and the employee gives you P45 with a week one month one tax code after their first pay day

If the employee gives you a P45 with a week one month one tax code after their first pay day, enter 'nil' as the previous pay and tax details in columns three and six of the P11 on the line above the one you will use for the employee's first payment.

Remember - if you've already received a tax code from us by the time your employee gives you their P45, destroy their old P45 and use the tax code we've sent you instead.

Changes to your employee's tax code

We may tell you to change an employee's tax code if their personal circumstances change. We'll do this by sending you a form P6. We can't tell you why the tax code's changed because it's confidential. But we'll explain the reason to your employee when we tell them about the change.

When you get a P6, you must use the new tax code from the next pay day onwards unless we give you a different start date.

Read about what happens when an employee gets a new tax code

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Start of a new tax year - new tax codes

If all tax codes need to change because of the Budget, we'll send you a notice telling you how to make the changes. For example, we might tell you to increase all codes ending in L by 12 so that the old code 510L becomes 522L.

If we know before 6 April what the Budget changes will be, we'll send you the details on form P9X/P9(T). If we don't know the changes until after 6 April, we'll tell you before 24 May what you need to do by sending you details on form P7X.

Find out about new tax codes at the start of a year

Help and advice

For more information about dealing with forms P45 and P46 when taking on a new employee, follow the links below for answers to common questions.

Common questions about form P45

Common questions about form P46

If you still can't find the information you need, you can ask a question through our email query service.

Send an email query about completing form P45

Send an email query about completing form P46

Alternatively you can get advice from our Employer Helpline on Tel 08457 143 143, open from 8.00 am to 8.00 pm, Monday to Friday and from 8.00 am to 5.00 pm, Saturday and Sunday, except Christmas Day, Boxing Day and New Year's Day.

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