Category Archives: PAYE&NIC

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Emergency Tax Codes

Occasionally, a new employee will start without a P45.  An Employer must then use an emergency tax code.

The emergency tax code is currently: 543L, although, from 7 September 2008 it will be 603L.

Using this code usually means that the employee gets their basic personal allowance, but does not take into account any other circumstances that may apply to them.

Other Tax Codes

Sometimes a tax code may have two letters and no numbers or be another combination:

BR Code
This code is commonly used where it is an employee’s second job and the all their personal allowances are used in the first/main job.  All income earned under a BR tax code will be taxed at basic rate.

D0 Code
An employee with this code has all their income taxed at the higher rate of tax.  This is also commonly used with a second employment, where the first job uses up all the personal allowances and income taxable at the basic rate of tax.

NT Code
An employee with this code has no tax deducted at all from their pay.

T Code
T at the end of a tax code indicates “temporary”, specifically that there may be items under review by HMRC.

Common Tax Codes

L Codes
Used for employees who are eligible for the basic personal tax allowance and also as an “emergency tax code”.  This is the usual code for employee’s main (or only) job with straightforward tax affairs.

P Codes
Used for people aged 65-74 who are eligible for the full Personal Allowance.

V Codes
Used for people aged 65-74 who are eligible for the full Personal Allowance, the full Married Couple’s Allowance and are estimated to be basic-rate taxpayers.

Y Codes
Used for people aged over 75 and who are eligible for the full Personal Allowance.

What is a Tax Code

A tax code is the short alphanumeric (eg. 543L) code that an employer uses to work out the correct tax to deduct from an employee’s gross pay.

What is IR35

IR35 was first propsed in 1999 and was introduced into UK legislation in 2000. The primary aim has been to prevent the avoidance of tax and national insurance by trading through an intermediary (commonly a limited company) rather than being an employee.

Prior to IR35, individuals could form a limited company and invoice their “client”/”employer” and then have their own limited company pay them a minimum salary and take the remainder as dividends. This avoided national insurance and tax through PAYE on the dividend element.

Payroll record keeping

Once a payroll is in operation, HMRC lay down certain requirements as to what records and information needs to be kept.  These include:

  • employees names, addresses (and their dates of birth)
  • gross pay, NICs, PAYE, other deductions, net pay (keeping a copy of their payslip would normally satisfy this requirement, assuming the payslip contained all the correct and required information)
  • copies of the employees’ P60
  • holiday, sickness, overtime, bonuses, commission details
  • value of benefits in kind and expense payments
  • amounts paid over to HMRC

Other information will also be required in the event of maternity/paternity/adoption and sickness/sick pay. 

In addition to records relating to payroll, you will be required to keep records relating to other matters, for example: hours worked, pensions, holidays taken, accidents.  (This is not an exhaustive list by any means)