Changes have been made to the tax code used by employers in certain circumstances which have come in to effect from 6 April 2011.

The most common situation this effects for smaller businesses is when a new employee starts working for their new employer without providing form P45 and not completing form P46.

Form P46 is used by employers to notify HMRC that an employee has started work without providing a form P45. Previously in these circumstances where an individual did not complete a form P46 before first payday then the employer had to complete form P46 to the best of their knowledge and submit the form to HMRC to update individual’s records and enable HMRC to issue a code if necessary. The employer was then authorised to operate code BR (on a cumulative basis) on the employees pay until they were notified by HMRC of the appropriate tax code. This resulted in some higher paid employees paying less tax than was due and an underpayment arising at year end.

From 6 April 2011 the code to operate in the above circumstances is 0T (zero allowances) instead of BR, so that the new employee will pay tax at the basic, higher and additional rate as appropriate.

Other situations affected by these changes:

• An employee receives income from an occupational pension whilst still in the same employment

• An employee receives payments from their employer after leaving

For further details on these situations and other changes concerning codes then follow link HM Revenue & Customs: Summary of PAYE regulation changes coming into effect on 6 April.

 For further advice on all areas of PAYE please contact us.