Emergency Tax Help
T1150L W1, 1105L M1, BR, OT — this might look like some kind of complex coding system, but these figures should be familiar to anyone running a business. Confused? You’re not alone. Emergency tax is something that confounds employers and employees alike. If you’re unsure about emergency tax, speak to one of our accounts who specialise in emergency tax and crack the code today.
Why is emergency tax applied?
Emergency tax codes are usually issued when HM Revenue & Customs doesn’t have enough relevant information about the employee’s income or tax details. Without this key information, they are unable to issue the correct tax code.
Missing information or documents that can lead to the application of emergency tax include:
- Missing Tax Credit Certificate (TCC) for the year
- Missing P45 from for the previous year
- A P45 which shows that emergency tax was applied the previous year
- A P45 without a Personal Public Services Number (PPSN)
Emergency tax may also be applied when the employee hasn’t held a job before or was previously self-employed, if they receive company benefits, or if they are receiving state pension but are still working.
Why are emergency tax codes important for a business owner? As the employer, you can use emergency tax codes to evaluate how much tax needs to be deducted from your employees’ salary.
Cracking the codes: a breakdown of the different emergency tax codes
We believe in keeping things simple, straightforward and accessible so that you can focus on what matters most in your business. Check out our breakdown of the emergency tax codes for 2017/18 to understand what each code means and how to use it:
- 1150L W1: This is applied when an employee has declared that they were receiving taxable Jobseeker’s Allowance, Employment and Support Allowance. The W1 here refers to weekly payments. Using this code, you can calculate your employees’ tax by basing it on what they’ve been paid in the current pay period, instead of throughout the whole year. Employees with this tax code will be entitled to a personal allowance of £11,500. On any payment over this limit, standard income tax will be applied.
- 1150L M1: This code is exactly the same as the one above, with the same application rules. The only difference is here the ‘M1’ in place of ‘W1’ refers to monthly payments.
- BR: This is applied when your employee also has another job or receives a state/occupational pension. For employees on this tax code, they are not eligible to receive their personal allowance of £11,500, which means that they pay a basic rate of 20% on all earnings. This basic rate of tax is charged on all earnings between £11,501 and £45,000.
- OT: This code is applied when you do not have enough information for an employee. Similarly to the BR tax code, employees earning between £11,501 and £45,000 have to pay the basic rate of 20% on their earnings. For employees earning between £45,001 and £150,00, the rate is slightly higher at 40%, whilst those earning over £150,000 will pay the additional rate of 45%. As before, the employee will not be eligible to receive their personal allowance until they are on the appropriate tax code.
The process: confirming a tax code
In order to confirm a new employee’s tax code, there are a few stages to complete:
- Find the PAYE reference number
- Find the employee’s National Insurance number (in the absence of an NI number, make sure to leave this section blank on the Full Payment Submission. Do not make-up a number)
- Contact HM Revenue & Customs to confirm the code
- As soon as your employee has provided their P45 or other details about their previous income tax, you’ll be able to pass this on to HMRC
- Once HMRC has updated its records, your employee will receive a PAYE coding notice, which will include their new tax code
- This information should then be updated on your payroll
- Employees should then review their 960 at the end of every tax year to check to see if they are entitled to a tax refund