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Pay As You Earn: common problems
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 don't 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 need certain information from you and may ask you to fill in a Starter Checklist. The 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 will adjust your tax code if necessary. It's important to complete the checklist and give it to your employer as soon as possible, to make sure that you don't pay too much tax.
You can find more more information about the Starter Checklist, on the GOV.UK website at www.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 instead.
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.
You can find more information about income tax and pensioners on the GOV.UK website at www.gov.uk.
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 announced by the government in the annual Budget statement, close to the beginning of the tax year in April. Most of the changes are announced earlier as well, in the Pre-Budget Report in the autumn, so there is time for them to take effect from the following 6 April.
If tax-free allowances go up in the Budget, this increases the amount of 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 pension. The tax on this new income can be deducted from your employment or existing pension income through PAYE.
If your tax position changes, your tax code may need to be amended. You should contact HMRC with full details of the changes and ask for the code to be amended. You can ring them on the Taxes Helpline 0300 200 3300 (Textphone 0300 200 3319). You'll need to give them your 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's important to contact them as soon as possible because you will be paying the wrong amount of tax if your tax code is incorrect. This could result in either an overpayment or an underpayment of tax. If an underpayment arises HMRC will collect this, usually in a later tax year.
If HMRC need further details before they can change the code, you may be sent a tax return 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, HM Revenue and Customs (HMRC) will review 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 underpaid tax, you might have to pay the debt back through PAYE.
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 an 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 paid when you were working normally may be too high for the amount of earnings you are now likely to receive over the whole of the tax year. However, if you get Jobseeker's Allowance or contributory Employment and Support Allowance, which are taxable, this could reduce the amount of the refund due to you.
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 tax 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 while 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, any underpayment of tax will be paid back 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 contact HMRC 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 reference number, your tax code and the total amount of pay and tax deducted during the current tax year. If tax has been deducted using an 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 HMRC 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 instead.
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 in the same tax year, for example, because you retire permanently or become a full-time student, you can claim a refund immediately. You should write to HMRC 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 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.
Before 6 April 2013, there were special rules about tax for students who only worked in the Easter, summer, and Christmas holidays. From 6 April 2013 these special rules no longer apply and your employer must operate Pay As You Earn (PAYE) to deduct income tax and National Insurance from your wages in the same way as for other employees.
This means that, 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 HMRC.
For more information about paying tax whilst you are studying and working, or for information about claiming a tax refund go to the GOV.UK website at www.gov.uk.
You can also find further helpful information for students on the Tax Guide for Students website at www.taxguideforstudents.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 can't be resolved by talking to your employer, you can contact HMRC Taxes Helpline on 0300 200 3300 (Textphone 0300 200 3319).
For information about HMRC helplines, see Help with tax problems.