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Employees on the wrong tax code
Sometimes when your employee fills in the Tax code declaration (IR330), they choose the wrong tax code.
We regularly check the details on your Employer monthly schedule (IR 348) (EMS) to make sure that your employees are on the right tax code so that we deduct the correct amount of tax and/or student loan repayments from their salary or wages.
What we do
When we identify employees using the wrong tax and/or student loan repayment code, we'll write to you, asking you to change the relevant code(s). We'll tell you which employees are using incorrect tax codes and let you know what code they should be on.
What you need to do
To make sure employees start paying the correct amount of tax or student loan repayments as quickly as possible, you'll need to change their tax code to the correct code starting the next pay period.
When you receive a letter from us, you need to:
- change the employee's tax code to the code indicated in our letter
- deduct tax based on the new tax code.
If you're changing an employee's tax code half way through the month, please do not use two lines for the one employee on the EMS. Instead, add the total gross earnings and add the total PAYE for that month and use the new tax code.
|Example - Changing an employee's tax code halfway through the month|
We write you a letter asking you to change an employee's tax code from M to S.
You receive the letter on 17 August, change the tax code to S and deduct tax at that rate in time for the next pay period of 28 August.
Why do I need to do this?
Using the correct tax code can help your employee avoid a tax bill or underpayment of their student loan repayment obligation at the end of the year.
If you receive a letter from us telling you that your employee is using the wrong tax code, you are legally required to change their tax code to the one we advise you in the letter.
My employee says they're already using the correct tax code
Please get your employee to contact us on 0800 227 774. We can then determine the best tax code for their situation.
I haven't yet changed my employee's tax code
In some situations it may be appropriate not to change your employee's tax code.
Janet started working for you part-way through the month. She's using the M tax code, and you've received a letter from us requesting you change her tax code to S.
You know Janet started with you immediately after leaving her previous employer, and is not working for any other employer. You hold off changing her tax code and Janet calls us. We accept that Janet does not currently have two sources of income and can continue to use the M tax code.
Janet tells you to keep the code on M.
I've already changed my employee's tax code
If your employee informs us that they should remain on their current code and we agree with them, you can change their tax code back to the former code they were on. You do not need to wait until you've received written confirmation from us. Please read the examples below:
I haven't sent the employer monthly schedule (IR348) and payment to you yet
You can change the EMS details to what they were previously and give the deduction difference back to the employee.
I have already sent the employer monthly schedule (IR348) and payment to you
You can fill in an employer monthly schedule amendments (IR344) to change the EMS details to what they were previously and request a refund of any overpaid tax or student loan deduction. You can then pay this to your employee.
Otherwise, your employee must wait until the end of the tax year and request a personal tax summary to get any overpaid tax refunded to them.