COMPLIANCE
S tarting a new job can be challenging at the best of times, and we don’t want to add to the stress by having people worry that they’re paying the wrong tax. There are nearly 18 million new job starters each year, and around one in seven of them are initially put on an incorrect tax code due to wrong or missing information. That's a lot of people, and being on an incorrect tax code isn’t good for anyone, as: l employees can be charged too much tax and get a lighter pay packet than they were expecting, or pay too little tax, then face an unwelcome bill out of the blue l employers and payroll teams have to spend unnecessary time answering queries and correcting their systems l we, at HMRC, get around 1 million calls a year from new starters asking what’s going on. Over the past few months, we’ve been working on a few ideas to ensure that more new job starters get on the right tax code quicker. We’ve made some changes to the way our pay as you earn (PAYE) IT system works, to put things right quickly where we spot something that looks odd. We’ve worked with employers where we see repeat mistakes and we’re using employer feedback to improve our processes and guidance. Correcting tax codes quicker The pay shock employees go through when they realise their take-home pay is lower than expected can cause real stress for them, and consequently for employers too when they’re asked to step in and help. We’ve recently updated our National Insurance and PAYE service (NPS) system to spot when a tax code doesn’t look right, and then automatically issue a new code if we have enough information to do so, without the need to contact us. NPS holds customers’ PAYE records, including their:
l current employment l coding information l tax code history.
We recognise mistakes can still happen, so we’re spotting common issues and supporting businesses on how to avoid them. Here’s our top tips for avoiding these common issues: Steps to take if an employee doesn't provide you with a P45 If your new employee doesn’t have a P45, that’s not a problem, if you use the starter checklist to find their starter declaration statement and the appropriate tax code. Don’t wait for the P45, and don’t worry if your new employee can’t provide one in time for the payroll run; the starter checklist will tell you which tax code to use temporarily. What tax code to use with starter declaration code C? If the starter checklist determines that the employee should be on starter declaration code C, use tax code BR. If you cannot complete the starter checklist for any reason, put your new employee on starter declaration code C and use tax code 0T on a ‘week 1 / month 1’ basis. What PAYE details are needed from a new employee? Ensure you’re submitting accurate personal data for your employee (including their name, date of birth and NI number) and check these against official documents. The easiest way for your new employees to find their NI number within minutes is on the HMRC app, which can be downloaded here: https://ow.ly/ BvFQ50QqqMM. For further information on gathering the correct PAYE information, take a look at our employer and employee help cards and stakeholder pack, which can be found here: https://ow.ly/LZjw50QqqOV. n
It’s this system that decides what tax codes should be used for employees, based on the information provided by their employer through real time information (RTI) and what’s already held on our systems. By looking at all this information together, we can often spot where there’s an issue and then correct it. So, with our latest system update, by the time most new employees get to their second payday we should have sorted their pay. We do this by identifying where tax codes for new starters on RTI full payment summary returns are incorrect, and issuing a P6 to the employer with the right tax code for them to use in the next payroll run. We’re also testing how best to reassure new starters when this happens, and are contacting some customers via email and text message to let them know we’re aware of the issue and are working to correct it. This aims to reduce their stress about fixing their pay and saves them from having to take time to contact us or from asking their employer for help. Supporting employers and payroll professionals to find the right information While we’re working hard behind the scenes to help get tax codes corrected, there are also some simple steps employers and payroll professionals can take to help their new starters get on the right tax code so this doesn’t need changing down the line. HMRC has updated the starter checklist so all employers and payroll professionals can know what information to ask for and submit it to HMRC straight away. The checklist can be found here: https:// ow.ly/4Tsv50QqqJB.
Case study – how HMRC is supporting businesses to get this right To address these issues we contacted over 100,000 employers, who we knew were making at least one of these common mistakes, via email in summer 2023. We provided answers to common questions, flagged online support / guidance and highlighted our starter checklist. Positive feedback from employers is backed up by a 40% reduction in errors in new employments where one (or more) of the issues our contact addressed between July and October 2023 were previously seen. Multinational cosmetic company, Estee Lauder changed its payroll process for onboarding new starters as a result, and their next RTI return had 100% accurate starter declarations and tax codes – great news for their employees and less work for their payroll department too! Yvonne Jones MCIPP, payroll director for Estee Lauder, said: “We reviewed and streamlined our internal processes to ensure every new hire had a valid starter tax code. As a result of this, our queries have reduced, and we are confident that our new hires start their employment positively with accurate tax deductions.”
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| Professional in Payroll, Pensions and Reward |
Issue 98 | March 2024
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