If you have a new employee joining your company, you need to determine their tax code for their first payday.
What information do I need to determine the tax code?
When your new employee joins, the first thing you need them to complete is a Starter Checklist. This is an HMRC document that gives your employee 3 options to choose from for their employment status.
Next, your employee may give you a P45 from their previous employer. If your employee doesn't give you a P45, then you can work a tax code out from their Starter Checklist.
These are the only two documents that will be used to determine the employee's tax code for their first payroll.
Using a P45 to determine an employee's tax code
If your employee has given you a P45 from their previous employer, you may be able to use this to determine their tax code.
Once you have checked the employee's P45 to decide if you can use it, the P45 tax code will take precedence over the code generated by the Starter Checklist.
Ensuring a P45 can be used
A P45 from a previous tax year
If your employee's P45 relates to the last tax year, you can still use the tax code from their P45. However, you'll need to ignore the week 1/month 1 indicator.
Using a starter checklist to determine an employee's tax code
Even if your employee has handed you a P45, they must still complete a Starter Checklist. It has three statements to choose from. You'll need to record this in PayFit so it can be reported to HMRC.
Use the statement selected to determine the correct tax code:
Statement selected | Tax code to use |
A - This is my only job since 6 April | 1257L |
B - I have had another job since 6 April | 1257L M1 |
C - I currently have another job | BR |
None | 0T M1 |
After your employee's first payroll
Once your RTI submissions have been sent for your employee's first payday, HMRC will determine if the employee is using the correct tax code. If the tax code is incorrect for any reason, HMRC will send the adjusted tax code via a P6 notification. For more information about notifications from HMRC, please refer to our Help Centre article.
You can't request a tax code from the HMRC before your employee's first payday.
When receiving the employee P45
Once you receive a P45 from the employee, you'll need to use Part 2 (noted in the top-right-hand corner of the form).
To add this to the employee's record in PayFit:
Note: If the Week 1/Month 1 indicator is ticked on the P45, you need to disregard the Total pay to date and Total tax to date value. You'll use the tax code from the P45, followed by M1. For example, if the tax code is 1257L and the Week 1/Month 1 indicator is ticked, you'll enter a tax code of 1257L M1.
From the employee's record, click the Employment tab.
Under the Previous employment section, click Edit.
Toggle on the Does the employee have a recent P45 with a tax code and previous employment data? option.
Add the details from the P45, including the Total taxable pay to date in previous employment, Total tax to date in previous employment and Most recent tax code.
Click Save details.
For more information about understanding tax codes, please refer to our Help Centre article.