Tax codes for new employees: the Starter Checklist
Employee tax codes and National Insurance
If you do not have a P45 from your previous employer, your new employer will calculate your new tax code based on your answer to the questions on the starter checklist ’employee statement’.
A – This is my first job since last 6 April and I have not been receiving taxable Jobseeker’s Allowance, Employment and Support Allowance, taxable Incapacity Benefit, State or Occupational pension.
B – This is now my only job, but since last 6 April I have had another job, or received taxable Jobseeker’s Allowance, Employment and Support Allowance or taxable Incapacity Benefit. I do not receive a State or Occupational Pension.
C – As well as my new job, I have another job or receive a State or Occupational Pension.
There are three codes that may be calculated from the Starter Checklist. In 2016-17 these are 1100L, 1100L M1/W1, and BR (2015/16 these are 1060L, 1060L M1 / W1 and BR). 1100L is known as the emergency code and can also be given on a cumulative basis or on a week 1 (W1) or month 1 (M1) basis (see below).
If you do not give sufficient information to your employer to complete a the Starter Checklist, then your employer will use a code 0T. For a basic rate taxpayer, this will produce the same result as a BR code, but for higher and additional rate taxpayers, the 0T code will ensure that they are taxed at these higher rates.
This code will be issued if you answer ‘A’ to the above question.
1100L is the ‘standard’ code for 2016/17 (just as 1060L applied for 2015-16). It gives you the standard tax free personal allowance of £11,000 for the year and is used ‘cumulatively’. This means your income tax and tax free pay is recalculated each pay day by taking into account the total pay and tax free allowances that are due to you since the start of the tax year.
For example if you are paid monthly, your taxable pay for the fifth month (August) will be calculated by taking into account your total pay for April to August. You should expect to have received 5/12ths of the personal allowance when the August tax is calculated. The taxable pay in August will simply be your total gross pay to August less your personal allowance entitlement to August. The same calculation happens each month, so by the 12th month of the tax year (March) you should have received 12/12th (i.e. all) of your personal allowance.
|Month||Gross Pay||Personal Allowance used||Taxable pay|
So over five months, your income was £5,000, and you received 5/12th of your personal allowance for the year of £4,583 (5/12 of £11,000).
This means that, even if your pay fluctuates substantially from week to week, at the end of the year the correct tax should have been deducted.
If you don’t have any taxable benefits in kind (like a company car), or employee expenses, or state pension, this is your only or main job and you have no other sources of untaxed income, then the standard 1100L code should mean you are paying the right amount of tax in 2016-17.
1100L W1 (or M1) codes
This code will be issued if you answer ‘B’ to the above question.
As you have confirmed this to be your only job you should be entitled to the full tax free personal allowance of £11,000 for the year. However, as your new employer does not have the details of your pay and tax from your previous employer, they are unable to calculate your tax on a ‘cumulative’ basis’. Instead, the 1100L code will be applied, but only by considering the proportion of the allowances and tax rate bands available to you for each particular pay period.
For example, if you are paid monthly you will be allowed 1/12th of your personal allowance, against each month’s pay. Also to the extent that your total pay for that month exceeds 1/12th of the basic rate tax band you will be charged higher rate tax on the excess.
This is called the ‘week 1’ or ‘month 1’ basis depending on whether you are paid weekly or monthly. Due to a change in policy at HMRC you will no longer see the letters ‘W1’ or ‘M1’ are added to the end of your tax code; if in doubt you should ask your employer or contact HMRC.
As explained above, these codes do not take into account changes in your income or coding which may have happened earlier in the year. This means that your tax position may not be exactly right at the end of the year.
For example, if you are entitled to a full tax free personal allowance of £11,000 in total for the year 2016-17 (note – if you are in receipt of state pension, this will reduce the tax free pay available for other income). This is approximately £917 each month. If you are paid £800 one month you will not pay any tax, but you will have unused tax free allowance of £117. If the following month you are paid £1,100 you will pay tax on £183 (£1,100 less £917), even though you have not used £117 of tax free pay the previous month. A similar problem arises if your pay fluctuates between basic rate and higher rate each pay period. You may, therefore, pay too much tax on a week one or month one code.
This will also happen if you have been on benefits earlier in the year, as you will not have used up your full personal allowance at that time. It may also apply if you have neither been working nor claiming benefits at any time since the start of the tax year, e.g. on a career break or a student, as again there may have been a pay period where you have not fully utilised your tax free pay.
1100L W1 or M1 is meant to be a temporary code. HMRC needs to issue a new code to your employer to replace the M1 or W1 code (quite often this is simply 1100L on a cumulative basis – so without the W1 or M1 marker).
HMRC has changed its policy on M1 / W1 codes. If you are issued with an M1 / W1 code, this may not be shown on paperwork sent to you, but it will be shown on your employer’s system.
If you think you are on an M1/W1 code and have not been transferred onto a cumulative tax code within a few months of starting your new job, you should contact your employer. If this does not resolve the position, contact HMRC (on the Taxes Helpline 0300 200 3300).
If you are still on an M1 /W1 code at the end of the tax year you may not have paid the right amount of tax and could be due a refund.The refund should happen automatically when HMRC reconcile the employer returns. If this happens, you should be repaid in about June / July following the end of the tax year.
In order to claim a refund before this, you will need to contact the tax office for a refund – see https://www.gov.uk/claim-tax-refund/too-much-tax-taken-from-your-pay#2 . If HMRC asks you to send in your P60 form(s), make sure you keep copies.
If your new employer is still using a 1100L W1 or M1 code at the end of the tax year, then, at the start of the next tax year, they should change your code to the standard cumulative code for that new tax year.
This code will be issued if you answer ‘C’ to the above question.
As you have confirmed that you are receiving income from elsewhere, the assumption is that you are already receiving your tax free personal allowance against that other source of income.
The BR code tells your employer to collect tax at the basic rate against your full earnings (the basic rate of income tax has been 20% for a number of years).
This code should be correct if you are a basic rate taxpayer and all of your personal allowance for the year is being fully used against earnings from another employment or pension.
If you have not got enough income from this other job or pension to cover all your tax free pay, then you should contact HMRC on the Income Tax Helpline 0300 200 3300 (as this is quite a complex issue, it is probably better to phone HMRC rather than contact them via the on-line form; you will need to give HMRC an estimate of your expected income from each job or pension, and update this if your circumstances change).
This code should be used if your employer hasn’t enough information to complete a Starter Checklist. An 0T code gives you no tax free pay, but unlike BR, D0 or D1 codes it is not a flat rate. It takes account of the basic rate, higher rate and additional rate tax bands. So the rate of tax increases as earnings increase. This will only affect people whose earnings in a pay period exceed the basic rate tax band.
For a basic rate taxpayer it will produce the same result as a BR code (a flat rate 20% deduction), but for a higher or additional rate tax payer, the 0T code will charge tax at 40% and 45% as income increases.
For your only (or main) job, an 0T code will not produce the right result, as it does not give you any tax free pay. If this has happened, you should contact HMRC on the Income Tax Helpline 0300 200 3300 or via the on-line form, so that the correct code can be issued to your employer. You may wish to discuss the matter with your employer first.