Payroll insight
● D0 and D1 – All pay from this source is taxed at higher rate (40% D0) or the additional rate (45% D1). There are no personal allowances applicable, which may happen where, for instance, the individual has more than one income. ● NT – This stands for ‘no tax’ (or ‘nil tax’), meaning no tax is to be deducted. This code must only be used if advised by HMRC in specific cases. It would never be used with S prefix for Scottish taxpayers. ● Emergency tax code – HMRC prescribes an emergency tax code for each tax year. It is the code that, in practice, provides the basic personal tax allowance. The emergency code is often, but not always, applied on the non- cumulative basis (see below). It is commonly used for new starters who have not provided a form P45 bearing a valid tax code. Basis of operation A person’s tax liability is based on their total taxable income during the whole tax year. For that reason, PAYE normally operates on a cumulative basis, which means that in each pay period: ● tax due is calculated on the total taxable earnings in the tax year to date ● any personal tax allowances are
prefix. It must only be used when notified to do so by HMRC or when the tax code on a new starter’s form P45 already includes this prefix. On leaving employment, the tax code for processing a payment after leaving will only be S0T if it had previously had an S prefix. (When Welsh income tax is devolved from April 2019, tax codings for Welsh taxpayers will be prefixed with ‘C’.) Other tax codes ● 0T – An individual is given no personal allowance to offset against income. The various rates of income tax and earnings bands will still be applicable (the basic and higher rates, and so on). It is used if an employee fails to provide an employer with a P45 or answer the employee declaration in the Starter Checklist or when the personal allowance has been used up by previous income. This code is the default code for payments after leaving. ● BR – All pay from this source is taxed at the basic rate (20%) and there are no allowances applicable. This is because the personal allowances have been used up, such as where the individual has a second job or receives a pension whilst working.
apportioned over the tax year ● tax charged that period is the difference between the total tax due and the tax paid to date. Such a system is, to some extent, self-regulating. An under-deduction in one period will be collected, or a refund due will be generated, in a later period. This is useful when a change in tax code is processed, particularly if it has retrospective effect. The cumulative nature of the calculation will ensure that full retrospection to the beginning of the tax year applies automatically as soon as the new code is used. HMRC may however, sometimes issue a notice of coding to be applied on a ‘week/ month 1’ basis (i.e. non-cumulatively). In this case, the employee’s tax is calculated by reference to the current tax period only. Previous earnings and tax paid in the current tax year are ignored. The following tax codes can be operated on either the cumulative or non-cumulative basis: the emergency tax code; BR; prefix D codes; NT prefix K codes; all tax codes with a suffix letter of L, M, N or T; and S prefix codes. (It’s presumed C prefix codes will operate similarly.) n
Have your say on the future of the CIPP AGM18
Voting is now open for candidates to join the board of directors for the CIPP. Board directors represent members views and influence the strategy and direction of the CIPP, therefore it is important that you, as members, vote for who you feel can best represent you.
You can vote online at cipp.org.uk/AGM
Should you wish to attend the AGM and ask the current CIPP board any questions regarding the direction of the CIPP, or in relation to the papers which are available from 8 October, please book your place online at cipp.org.uk/AGM
Attendance at the AGM is free for CIPP members. Should you wish to attend, please book via our website at cipp.org.uk
cipp.org.uk @CIPP_UK
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| Professional in Payroll, Pensions and Reward |
Issue 44 | October 2018
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