The PAYE tax code an employer must use will depend on a number of factors such as whether the new code notification comes on a form P9, and in the case of new employees their date of leaving as shown on their P45 coupled with the date they start their new job.
To help employers use the correct PAYE tax code, online form P9X is published each year.
For example, the P9X for 2014/15 makes clear that for existing employees (i.e. those in employment on 5th April 2014) the employer should either:
- Use the latest PAYE coding notice P9 issued by HMRC for the tax year 2014/15, or
- Carry forward the employee’s last PAYE tax code from 2013/14, or the last form P2 coding notice received for 2013/14. Where the code has an ‘L’ suffix, the employer should add 56 points to the code, so that 944L becomes 1000L. Do not carry forward any W1/M1 markings. Do not alter any other carried forward codes that are not ‘L’ suffix codes (such as a ‘D’ or ‘NT’ tax code).
If you have an employee whose contract ended on or before 5th April 2014 but will be paid their last routine wages on or after 6th April (after which they’ll be given their P45), you should use the existing tax code last used in 2013/14. This is not the same where a payment is made after termination of employment and issue of the P45 when tax code 0T on a W1/M1 basis should be used.
If you have a new employee who starts their new job between 6th April 2014 and 24th May 2014, there are special instructions as to which PAYE tax code the employer must use.