When taking on a new employee
Probably you are aware that every new employee should complete a starter declaration. It is crucial in order to work out the correct tax code prior the first Full Payment Submission. Not completing a starter declaration on time will lead to incorrect tax code being used when making the first Full Payment Submission. Consecutively leading to not paying the correct amount of tax. In many cases overpayment due to an emergency tax code, or underpayment because the use of a standart one. Although that depends on personal circumstances e.g. total tax paid in the current financial year. A starter declaration is pivotal in order to get the correct tax code.
Incorrect tax payment has to be corrected through payroll. HM Revenue and Customs have provided a very useful tool which help with the submission of the accurate new employees’ tax code.
When taking on a new employee, every employer should be provided with P45, so it is important to ask for one as soon as possible. If the document is missing every starter should complete a new starter checklist. The latter appears to be very useful in providing all relevant information, working out the correct tax code, and avoiding future payroll adjustments. Holding all relevant information, employers should check if previous income and tax are being considered.
Certain circumstance might lead to additional changes to employees tax codes. Usually that takes place when HMRC receive information of any changes (e.g allowances or deductions that have taken place). If that is the case, the tax office would inform the employer, or the payroll provider.
Before the beginning of each tax year the government officially confirm the amount of Personal Allowance applicable. Most payroll software would update such information automatically, still worth checking if that is the case with the one you are using.
When taking on a new employee, employers should request P45 as soon as possible. Alternatively they would need to request information and work out the correct tax code prior executing the payroll.