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 that the figures on it are correct and use the correct figures if they're not. For details of how to do this read our guide 'Taking on a new employee' if you've not yet done so – there’s a link at the end of this section.

Use the table below to work out what tax code to use. Find the date they left their previous employment in the first column, and their start date with you in the second column – then use the tax code listed in the third column.

Enter this tax code into your payroll software or the P11 Calculator, or in box K if you’re setting up a paper P11 for the employee.


Employee’s date of leaving (item 4 on P45)	Employee’s start date with you	Tax code to use
On or after 7 September 2008	On or after 7 September 2008	Use the code on the P45
6 April 2008 to 6 September 2008	6 April 2008 to 6 September 2008	Use the code on the P45
6 April 2008 to 6 September 2008	On or after 7 September 2008	Use the code on the P45, but add 60 to any code ending in L
6 April 2007 to 5 April 2008	6 April 2008 to 24 May 2008	Use the code on the P45, but add 21 to any code ending in L. Do not carry forward any week 1/month 1
6 April 2007 to 5 April 2008	25 May 2008 to 6 September 2008	Use code 543L on a week 1/month 1 basis
6 April 2007 to 5 April 2008	On or after 7 September 2008	Emergency code 603L on a week 1/month 1 basis
Before 6 April 2007	6 April 2008 to 6 September 2008	Use code 543L on a week 1/month 1 basis
Before 6 April 2007	On or after 7 September 2008	Emergency code 603L on a week 1/month 1 basis

To find out more about week one or month one tax codes read the guide 'Understanding employee tax codes' – there’s a link below.

The emergency tax code for the tax year 2008-09 is 543L until 6 September 2008 and then 603L from 7 September. This is an exception - usually the emergency code changes once each year. You can also find it published in 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. Make sure you use the most up-to-date version of E12 – check the dates on the front of the booklet.

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 Tel 08457 143 143. 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.

Taking on a new employee

Understanding employee tax codes

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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	Date of pay day	Tax code to use
A	Before 7 September 2008	543L cumulative
A	On or after 7 September 2008	603L cumulative
B	Before 7 September 2008	543L week 1/month 1
B	On or after 7 September 2008	603L week 1/month 1
C	Any	BR cumulative
None	Any	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.

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 (603L 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 £116.60 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 603L, 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 £2,183.60 arrived at as follows: £15,100 less free pay of £4,181.40 (£116.15 x 36) = £10,918.00 (rounded down to the nearest pound), which is taxable at 20 per cent = £2,183.60
you enter £2,183.60 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:

£2,183.60 (total tax due on £15,100) less £1,959.99 (tax shown as already paid on the P45) less £116.60 (deducted at week 34) less £116.60 (deducted at week 35) = refund of £9.59 due for week 36
you therefore enter £9.59R 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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