Advice needed re Emergency Tax

nik_k

I have just started a new job. For the past 3 years I have been self-employed. I therefore have no P45/P60 to give my new employer. They have said that this will mean I will be put onto an Emergency Tax code, which will result in me paying far too much tax in my first month.

From a quick Google search, I have established the Emergency Tax code is 647L, and also that my personal allowance is £6475, therefore also giving an emergency tax code of 647L.

I am now confused...

Will I really end up paying too much tax when I am put onto an emergency tax code?

From what I have heard in the past, emergency tax codes are killers in that you end up paying too much tax, but has there been a recent change, making emergency tax codes less of a problem?

Thanks in advance

jem16

nik_k wrote: »

I have just started a new job. For the past 3 years I have been self-employed. I therefore have no P45/P60 to give my new employer. They have said that this will mean I will be put onto an Emergency Tax code, which will result in me paying far too much tax in my first month.

You need to complete a P46 as you have no P45. Otherwise you will be put on code BR which means you will have no personal allowances.

http://www.hmrc.gov.uk/forms/p46.pdf

From a quick Google search, I have established the Emergency Tax code is 647L, and also that my personal allowance is £6475, therefore also giving an emergency tax code of 647L.

I am now confused...

Will I really end up paying too much tax when I am put onto an emergency tax code?

Perhaps, perhaps not as we are not long into the new tax year. If you end up on code 647L it won't be too bad but not so good if you go onto BR. So really important to get the P46 handed in to your employer.

trevormax

people often confuse emergency tax codes with basic rate tax codes, although the two are very different.

If you are on an emegency tax code you will be on 647L W1/M1. as we are only entering the 3rd month of the tax year in a week or so, you will not be HUGELY over taxed and if your tax office and payrol office do their job you will get any amount overpaid paid back to you in a later wage (maybe the next months.

If you are on a basic rate tax code (BR) then all of your income is taxed at 20% causing a big overpayment of tax.

So in summary, yes you will be over taxed if you earn more than £560 gross/month, but its not going to be as bad as you think.

zax47

To add to jem16's excellent advice, many payroll depts still get confused between BR code and "emergency" tax code. Yes, the "emergency" code is 647L (same as the tax-free Personal Allowance, just to confuse things!) but they can only apply that when, in the absence of a P45, they have some info from you (fill in a P46).

If they get NOTHING (no P46) from you before your first payday then they have to use BR and tax all your income at 20% (no tax-free allowance!) until they get a P6 coding notice from HMRC.

Have a look at this page on the HMRC website re; new starters and P46 form.

New starters and P46

This is the important bit;

"P46 information not received by the employee's first pay day
Exceptionally, if your employee hasn't completed the P46 or provided you with the information to complete section one in time for their first pay day you must complete this section to the best of your knowledge on their behalf and use code BR (Basic Rate) on a cumulative basis"

I guess what we are both saying is, download a P46 from the link jem16 gave you, fill in section 1 and give it to you hr/payroll dept straightaway.

I do the payroll for my small business and stuff like this does my head in!

nik_k

My new job is basic + commission, the pay period is every 4 weeks, but all commission is paid 1 period in arrears. Therefore, my first pay will be basic only. The basic is NMW, I work 40hrs per week, so, before tax, my first pay will be :-

£5.73 x 24 = £137.52 (week 1 was only 3 days)
£5.73 x 40 x 3 = £687.60
= £825.12

Obviously, I don't want any more tax taken than is feasibly possible, so need to work out now what my best plan of attack is, in advance of the end of week 4 (just finished week 1).

Am I best filling in a P46 then? My last P45 would have been from my last employment ending in August 2005.

Mudd14

They wont accept a P45 that old.

If you fill out a P46 and tick box A which states it is your first and only job since 5th April this year you will be put ona normal 647L code which is the normal tax code.

You wouldnt have any mroe tax taken being on an emergency code (647L WK1/MTH 1), you just wouldnt have the April and Mays tax free allowance

nik_k

Mudd14 wrote: »

They wont accept a P45 that old.

If you fill out a P46 and tick box A which states it is your first and only job since 5th April this year you will be put ona normal 647L code which is the normal tax code.

You wouldnt have any mroe tax taken being on an emergency code (647L WK1/MTH 1), you just wouldnt have the April and Mays tax free allowance

So...if I am reading this correctly, my tax free allowance for this job for(essentially) the period June through to April, would be approx £5395. ((£6475/12)*10) and I would be taxed at the same rate as if I had been able to provide a P45 from a recent job? If so, that makes me happy :j

jem16

nik_k wrote: »

So...if I am reading this correctly, my tax free allowance for this job for(essentially) the period June through to April, would be approx £5395. ((£6475/12)*10) and I would be taxed at the same rate as if I had been able to provide a P45 from a recent job? If so, that makes me happy :j

You will still be entitled to the full personal allowance of £6475 for the year.

If you are put onto the 647L tax code you will get April and May's allowances so will pay less tax in June than normal.

If you are put on 647L Wk1/Mth1 (unlikely if it has been your only job since April 6th)you will pay a normal amount of tax in June and then get a refund in July to give you the allowances you missed.

If you are put on BR (because you didn't get the P46 in on time) you will pay more tax but will eventually get a refund when the P46 is processed.