Tax codes for new employers: form P46

As explained above, 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 following question on the form P46.

Your present circumstances

Read all the following statements carefully and enter ‘X’ in the one box that applies to you.

A – This is my first job since last 6 April and I have not been receiving taxable Jobseeker’s Allowance, Employment and Support Allowance or taxable Incapacity Benefit or a state or occupational pension.

OR

B – This is now my only job, but since last 6 April I have had another job, or have received taxable Jobseeker’s Allowance, Employment and Support Allowance or taxable Incapacity Benefit. I do not receive a state or occupational pension.

OR

C – I have another job or receive a state or occupational pension.

There are three codes that may be calculated from the P46. In 2011/12 two of these are 747L, and BR.  747L is known as the emergency code and can also be given by the P46 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 P46, then, from 2011/12, 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.  

747L code

This code will be issued if you answer ‘A’ to the above question.

747L is the ‘standard’ code for 2011/12. It gives you the standard tax free personal allowance of £7,475 for the year (due for those aged under 65) 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 12^th month of the tax year (March) you should have received 12/12^th (i.e. all) of your personal allowance.

Example:

So over five months, your income was £4150, and you received 5/12th of your personal allowance for the year of £3115

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 are under 65, don’t have any taxable benefits in kind (like a company car),  this is your only or  main job and you have no other sources of untaxed income, then the standard 747L code should mean you are paying the right amount of tax.

747L 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 £7,475 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 747L 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 1/12^th of your personal allowance, against each month’s pay.  Also to the extent that your total pay for that month exceeds 1/12^th 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, but they are essentially the same. The letters ‘W1’ or ‘M1’ are added to the end of your 747L tax code under the P46 process to tell your employer to calculate tax on this basis.

For reasons 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 under 65 you are entitled to a full tax free personal allowance of £7,475 in total for the year.  This is £623 each month. If you are paid £400 one month you will not pay any tax, but you will not have used £223 of your tax free amount.  If the following month you are paid £700 you will pay tax on £77 (£700 less £623) – even though you have not used £223 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 are therefore likely to 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 is also true if you have neither been working nor claiming benefits for a period of time since the start of the tax year – e.g. on a career break or a student, as again there will have been a pay period where you have not fully utilised your tax free pay.

747L W1 or M1 is meant to be a temporary code. If you are still on this code at the end of the tax year you may not have paid the right amount of tax and could be due a refund.

In order to claim a refund of any taxes that may have been overpaid you will need to write to the tax office for a refund. Enclose the P60 together with details of any other income you had on the tax year. Keep a copy of your P60. You can find out the tax office address from the HMRC website ‘contact us’ link. You will need the PAYE reference from the P60. HMRC contact us link.

Note: If your new employer is using a 747L W1 or M1 code, then, if no tax code is sent to them by HMRC at the start of the next tax year, they should follow HMRC guidance and change your code to the standard emergency code for that year (i.e. the equivalent of 747L for that year).  

BR code

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 some of that other income.  The BR code tells your employer to collect tax at the basic rate against your full earnings (20% in 2011-12).

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.

0T code

This code should be used if your employer hasn’t enough information to complete a P46.  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 50% as income increases. If you are on a 0T code this will not produce the right result if this is your only (or main) job. You should contact HMRC on the Employee Helpline 0845 300 0627 so that the correct code can be issued to your employer. You may wish to discuss the matter with your employer first, to see if completing a P46 would be sufficient to give you the correct tax code.