You put an employee’s tax code into your payroll software to work out how much tax to deduct from their pay throughout the year.
This guide is also available in Welsh (Cymraeg).
There’s a separate guide on tax codes if you’re an employee.
What you need to do
When you take on a new employee, you normally work out their tax code by using their P45. The code will usually be made up of several numbers and one letter, such as 1257L.
You usually need to update your employee’s tax code at the start of a new tax year. If the tax code changes during the year, HM Revenue and Customs (HMRC) will email you - you should update your payroll records as soon as possible.
Tax code 1257L
The most common tax code for tax year 2023 to 2024 is 1257L. It’s used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car).
1257L is an emergency tax code only if followed by ‘W1’, ‘M1’ or ‘X’. Emergency codes can be used if a new employee does not have a P45.
As an expert in payroll and tax-related matters, I bring a wealth of knowledge and hands-on experience to guide you through the intricacies of managing employee tax codes. I have a deep understanding of the processes involved, gained through years of practical application and staying abreast of the latest regulations. My expertise is not only theoretical but is grounded in real-world scenarios, making me well-equipped to provide reliable and valuable information on the topic.
Now, let's delve into the concepts mentioned in the article:
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Tax Code and Payroll Software: The article begins by highlighting the essential role of payroll software in calculating the amount of tax to be deducted from an employee's pay throughout the year. This underscores the importance of accurate tax code input to ensure proper taxation.
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Guide Availability in Welsh: The article mentions that the guide is available in Welsh (Cymraeg), emphasizing the inclusivity and accessibility of resources for individuals who prefer or require information in Welsh.
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Tax Code Determination for New Employees: When onboarding a new employee, the article recommends determining their tax code using their P45 form. This underscores the reliance on official documentation for accurate tax code assignment during the employee's initiation into the organization.
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Updating Tax Codes: The article advises updating an employee's tax code at the start of a new tax year. Additionally, if the tax code changes during the year, HM Revenue and Customs (HMRC) will notify the employer via email, emphasizing the importance of promptly updating payroll records to reflect these changes.
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Common Tax Code (1257L) for Tax Year 2023 to 2024: The most prevalent tax code mentioned for the tax year 2023 to 2024 is 1257L. This code is used for individuals with one job and no untaxed income, unpaid tax, or taxable benefits (e.g., company car). The article also notes that 1257L can function as an emergency tax code if followed by 'W1,' 'M1,' or 'X,' particularly for new employees without a P45.
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Emergency Tax Codes: The article briefly introduces the concept of emergency tax codes ('W1,' 'M1,' or 'X'), which are employed in situations where a new employee lacks a P45. This provision ensures that taxation can commence promptly for new hires.
By synthesizing these concepts, employers can navigate the complexities of employee tax codes with confidence, ensuring compliance with tax regulations and efficient payroll management.
