Why is this important?
Pay As You Earn: common problems
Table of contents
- Starting a new job
- Benefits in kind
- More than one job or occupational pension
- Other taxable income
- Wage rises and increases in your occupational pension
- Changes to income tax in the Budget
- Change in circumstances
- Underpayments and overpayments of tax - getting a P800 tax calculation form
- Sick or on maternity leave, paternity or adoption leave
- Unemployment, short-time working or on strike
- Your employer or HM Revenue and Customs makes a mistake
- Leaving a job
- Dealing with a tax problem
When you start a new job or start to get a pension, your employer or pension provider needs to know your tax code. If you were given a form called a P45 from a previous job in the same tax year, your employer will use the information on this to deduct the right amount of tax. If you were unemployed and getting Jobseeker’s Allowance(JSA) or contributory Employment and Support Allowance (ESA), you should give your new employer the form you were given by the Jobcentre Plus. This form is called a P45U if you were getting JSA or a P45ESA if you were getting ESA.
You do not have a P45, P45U or P45ESA
You may not have a P45, P45U or P45ESA. This may be because you:
- were unemployed but not receiving JSA and therefore do not have a P45U - see under heading Unemployment, short time working or on strike
- were unemployed but not receiving contributory ESA and therefore don’t have a P45ESA - see under heading Unemployment, short time working or on strike
- have lost the form
- were not given a P45 by your last employer
If you can't give the employer the P45 form, your employer will ask you to fill in a Starter Checklist. This checklist asks questions which decide what your tax code should be and therefore how much tax should be deducted from your pay. Your employer sends the information from the Checklist to HM Revenue and Customs (HMRC) and they decide what your tax code should be.
The Starter Checklist replaces the old P46 form. There is more information about the Starter Checklist on the HMRC website at www.hmrc.gov.uk.
For more information about being taxed on an emergency code, see under Emergency tax codes in The Pay As You Earn - PAYE - system.
You have lost your P45, P45U or P45ESA
If you have lost your P45, P45U or P45ESA, you will not be able to get a duplicate, as these are never issued. Your new employer will ask you to complete a Starter Checklist, which replaces the P46 form
If you receive any taxable benefits in kind, you must include their value on your tax return, if you receive one, for the relevant tax year, whether or not tax has already been paid on the benefits under PAYE. Your employer will give you this information by 6 July following the end of the tax year. Your employer also has to make a return to HMRC giving details of any benefits given to or provided to you.
For more information about benefits in kind, see Benefits in kind.
If you have more than one job, you will need a PAYE code for each job where your earnings are taxed under PAYE. You will usually be sent a separate notice of coding for each job. The same applies if you have more than one occupational pension. All the reliefs and allowances you are entitled to will normally be included in the tax code for your main job or pension. This means that all your earnings from the second job or pension will be taxed without allowances or reliefs. The tax code you are given for the second job or pension will be:
BR: if you are being taxed at the basic rate of tax (20%)
DO: if you are being taxed at a higher rate of tax (40%).
If the income earned from the second job or pension takes you into the higher rate of tax, all the earnings from the second job or pension will be taxed at the higher rate. If you are in this situation, you may find that your tax bill will need adjusting at the end of the tax year.
If you have received a P800 form telling you that you have overpaid or underpaid tax, see under heading Underpayments and overpayments.
If you have other taxable income in addition to wages or an occupational pension, your employer or pension payer can deduct the tax due on your additional income from your wages or occupational pension. For example, if you pay tax under PAYE on an occupational pension, the tax due on your State Retirement Pension can be collected through your PAYE code. Your State Retirement Pension is deducted from your allowances in the coding notice for your occupational pension.
For more information about how other taxable income can be taxed under PAYE, see Income tax for people aged 65 or over.
When you get a wage rise, you are liable to pay more tax and/or national insurance contributions. The adjustments for this will be done automatically by your employer through your next pay packet.
The same happens with any pension increases as you are liable to pay more tax (but no national insurance).
Changes to income tax are usually made by the government in the annual Budget, for example, the amounts of the allowances are usually increased. The changes are announced during November in the Pre-Budget Report and take effect from the following 6 April.
If the allowances go up in the Budget, this increases the amount of tax-free pay you can receive before you start paying tax. If your tax code ends in the letters L, P or V, your employer can make the adjustments automatically ready for use in the next tax year starting on 6 April.
If your PAYE tax code includes the letter T or K, HMRC has to calculate a new tax code to send to you and your employer. The new code should be in place by 6 April or soon after, but if there is any delay you will receive a tax refund.
For an explanation of tax codes, see The Pay As You Earn (PAYE) system.
Your tax code will be affected if:
- your personal circumstances change, for example, you become entitled to a blind person's tax allowance
- your outgoings change and you can claim extra reliefs, for example, on a new pension policy
- your taxable income changes, for example, you start receiving a new taxable occupational pension. The tax on this other income can also be deducted from your employment or pension income through PAYE.
If your tax position changes, your tax code may need to be amended. You should write to your tax office with full details of the changes and ask for the code to be amended. You should give your full name and national insurance number and details of your employer’s or pension payer's name, address and tax reference number. You can obtain these details from your P60 or by asking your employer or pension payer.
It is important to write as soon as possible because you may be paying the wrong amount of tax because your tax code is incorrect. This could result in either an overpayment or an underpayment of tax. If an underpayment arises the tax office will collect this, usually in a later tax year.
If your tax office needs further details before they can change the code, you may be sent a tax return for you to fill in for the previous tax year. You should return this as soon as possible. If you delay, the change to your tax code will be delayed.
Underpayments and overpayments of tax - getting a P800 tax calculation form
At the end of every tax year, your employer or your pension payer must provide HM Revenue and Customs (HMRC) with details of all your income and the tax you have paid during the tax year. If you have underpaid or overpaid, HMRC will send you a P800 Tax Calculation form showing how they have calculated the overpayment or underpayment.
You should check the information on the form carefully. If you don't agree with it, contact HMRC following the instructions provided with the form.
If you have overpaid tax, a refund will be sent to you. You do not have to claim it.
If you have underpaid and the amount that you owe is less than £3,000, the underpayment will be collected by an adjustment to your PAYE tax code in the next tax year. You do not have to do anything if you agree with the amount.
If you have underpaid tax and owe more than £3,000, interest may be payable. But HMRC will not charge you interest if you contact them to make an arrangement to pay the debt.
In some very limited circumstances, it may be possible for HMRC to write off the debt, or, if your employer or pension payer is at fault, to collect the tax from them instead.
You can find out more about checking a P800 Tax Calculation and about the circumstances in which you may be able to challenge the underpayment, on the website of the Low Incomes Tax reform group (LITRG) at: www.litrg.org.uk.
If you are sick or on maternity, paternity or adoption leave, you will have the tax on your pay collected under PAYE.
If you do not receive any pay, you will be entitled to a refund. This is because you did not use your tax allowance during the period when you were unpaid.
The refund can either be paid when you return to work or while you are off work. Generally this is done through the payroll.
If you are not getting any pay, you might prefer to have the refund as soon as possible rather than wait until you are next paid. You should ask your employer to arrange this or confirm when the refund will be paid.
If you're on an emergency code, you will not get a refund.
If you are unemployed, on short-time working or on strike, you may be entitled to a refund of tax at the end of the tax year. This is because the amount of tax you have paid may be too high for the amount of earnings you are now likely to receive over the tax year. However, if you get Jobseeker's Allowance or contributory Employment and Support Allowance which may be taxed, the refund may be cancelled or reduced.
If you become unemployed and claim benefits, you cannot normally claim a tax refund immediately. You will either get a refund automatically under PAYE if you go back to work, or at the end of the financial year, whichever is sooner.
If you are temporarily on short-time working, your employer should make whatever tax refund you are entitled to on your normal paydays.
If you are on strike or involved in a trade dispute, you will not be able to claim a tax refund whilst on strike. Instead, you will have to wait for a refund under PAYE - in other words when you either leave the job or return to work. If you are still on strike at the end of the tax year, you will not get a refund until you leave the job, or return to work. However, your employer will give you your P60 which will show the refund which is due as if it had been paid. Your employer must also give you an additional note saying how much tax refund under PAYE is being withheld until you leave or return to work.
For more information on tax refunds, see Tax refunds.
Your employer or HM Revenue and Customs (HMRC) may make a mistake, for example, HMRC gives your employer the wrong PAYE code or your employer wrongly calculates your tax and deducts too much or too little tax. In these circumstances, the amount of tax which you have underpaid will be reclaimed by adjusting your PAYE tax code for the following tax year. In a limited number of circumstances, you may not have to pay all the tax arrears that you owe. This generally depends on whether HMRC accepts that your employer was acting in good faith when making the error. HMRC may make its own estimate of the unpaid tax.
If you think that a mistake has been made in the amount of income tax you have been paying, you should inform your tax office as soon as possible.
If you have received a P800 tax calculation telling you that you have overpaid or underpaid tax, see under heading Underpayments and overpayments.
If you leave your job - either voluntarily, through dismissal, redundancy or because you retire - your employer should give you a Form P45. The P45 gives details of your employer's tax office, your employer’s tax reference number, your tax code and the total amount of pay and tax deducted during the current tax year. If tax has been deducted on the emergency code, the P45 will have an X in the box marked week 1 or month 1 and there will not be any details of pay or tax.
Form P45 is in four parts. Part 1 will be kept by your old employer who will give the other parts to you. Part 1A is for you to keep safely as your record of pay and tax taken off. Parts 2 and 3 are for your new employer if you start to work again or claim Jobseeker's Allowance or contributory Employment and Support Allowance.
If your employer fails to give you a P45 after being asked to do so, you should contact your tax office as they may encourage your employer to issue a P45. If your employer cannot be persuaded, a new employer will ask you to complete a Starters Checklist, which replaces the P46 form.
If you claim Jobseeker’s Allowance or contributory Employment and Support Allowance, you will have to give the P45 to the Jobcentre Plus office. If you start work again before the end of the tax year, Jobcentre Plus will give you a P45U or P45ESA which includes details of the taxable benefit you have received as well as the normal P45 details.
If you leave at the very end of the tax year, you should be given a P45 on leaving and, by 31 May, a P60.
If you are out of work for some time, you may be entitled to a refund because you will have paid too much tax while you were working. The refund will usually be paid when you start work again.
If you can show that you will not be working again that tax year, for example, if you retire permanently or become a full-time student, you can claim a refund immediately. You should write to your tax office and ask for a final calculation or alternatively you can complete a claim form P50 which you can download from the HMRC website at www.hmrc.gov.uk.
If you become unemployed and claim welfare benefits, you cannot normally claim a tax refund immediately. You will either get a refund automatically under PAYE if you go back to work, or at the end of the financial year, whichever is sooner.
From 6 April 2013, if you are a student who is working during the holidays, you will pay tax in the same way as other employees. Your employer must record your pay and tax details on the Full Payment Submissions (FPS) which they send to HM Revenue and Customs (HMRC).
Before 6 April 2013, students used to be able to avoid paying tax if they were only working in the holidays, by filling in form P38(S). Form P38(S) cannot be used from 6 April 2013.
This means that from 6 April 2013, if you're a student and you don't earn much, for example because you only work during the holidays, you could be paying too much tax. You may be able to claim a tax refund from the HMRC.
For more information about paying tax whilst you are studying and working, go to the GOV.UK website at www.gov.uk.
You can find more information about how you can claim a tax refund on the HMRC website at www.hmrc.gov.uk.
You can also find further helpful information on the website of Low Income Tax Reform Group (LTRG) at www.litrg.org.uk.
If you have a problem about your income tax, you may be able to sort it out by talking to your employer. Your employer will have guidance from HMRC on how to operate the PAYE tax system and deal with problems.
If the problem cannot be resolved by talking to your employer, you can contact:
- your usual tax office
- HMRC's Taxes Helpline on 0845 3000 627
- your nearest HMRC enquiry centre.
For information about tax enquiry centres and tax offices, see Help with tax problems.