We always need to know the employee’s name, address and National Insurance number and to satisfy ourselves that the employee has the right to work here. Ask the new employee to produce a P45 from the previous employment, and evidence of the National Insurance number if necessary. There are a number of possibilities:
We get one. Pass the P45 to your accountant or payroll bureau who will transfer the details to their payroll software and carry on with doing the pay.
The employee promises to produce the P45 at a later date. Ask the employee if he or she knows his or her tax code. If he or she does, then pass it to your accountant or payroll bureau. After we have filed the first pay slip via the Real-Time Information system, we will probably get a private electronic notice from HM Revenue and Customs in a week or two to tell us what the tax code should be, and this is likely to beat the employee’s efforts to retrieve the P45. The tax code we use is likely to be something like 1250L W1M1 which is playing safe.
Strictly speaking we should use 0T W1M1 or BR W1M1 which will probably result in the employee being over-taxed. The difficulty with this is that we might get the correct tax code from the Revenue only after a while, speaking from experience, so a rebate to the employee will need to be paid at once. In the meantime the employer may need to pay the same tax to the Revenue as a quarterly or monthly payment, so the employer ends up underwriting the Revenue’s incompetence and paying twice as cash up front, although this can be offset against other employees’ PAYE if there is any, and will be dealt with properly in due course. Maybe the employee could at least produce the last pay slip and/or some evidence of his or her National Insurance number.
The employee is rather vague. The employee goes on the 0T W1M1 code and may be over-taxed. This will be sorted when we get a notice from the Revenue. Note the warning in the previous paragraph. Do you actually want to have such an employee? Maybe the employee could at least produce the last pay slipand/or some evidence of his or her National Insurance number.
The employee has another job or a pension. The employee goes on the BR W1M1 code and may be over-taxed. This will be sorted when we get a notice from the Revenue.
The employee has not had any job since April 6th, and has not received any kind of unemployment benefit since the same date. The employee goes on the 1250L tax code, and will probably stay there.
Since April 6th, the employee has received an unemployment benefit such as Jobseeker’s Allowance, Employment and Support Allowance, or taxable Incapacity Benefit. The employee goes on the 1250L W1M1 tax code, and will probably stay there.
For low-paid employees, extra codes like W1M1 do not have much significance, and the difference between BR and 0T is also insignificant. If it were to be an issue, then the employee should have produced a P45. A code like 1250L means that we multiply the 1250 by 10 and add 9 to get the annual allowance of 12,509 which our software deducts from income before working out the tax at 20%. A code like 635L would mean that 6,359 is allowed before tax.
If all your employees are low-paid, below the Lower Earnings Limit of £118 per week, then a payroll scheme may not be necessary, although you should still always record name, address and National Insurance number. However, if just one of them has a pension or a salary from elsewhere then a payroll scheme is needed, and once it is set up then all employees need to be on it. Nasty! If you outsource this low-pay payroll scheme to an accountant or payroll bureau, then the fees you pay are likely to be poor value for money in terms of cash transmission efficiency. If you want to switch payroll provider or do it yourself, then April 6th is a good date to make the change.