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Change to Box C of P46 to recognise employees who are taxed at the higher and additional tax rates
Friday, October 22nd, 2010
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In a recent newsletter we referred to an announcement in the latest Notes for Payroll Software Developers that, from April 2011, tax code 0T would be an acceptable response to an employee checking Box C. Current PAYE rules require tax code BR to be applied in this situation, but not D0 in cases where it is clear that a new employee should be taxed at 40% in the second job.
A recent note to payroll system developers from HMRC’s Software Developers Support Team provides the explanation, showing how 0T is a better solution than using D0 and will be used instead of BR from April 2011. The announcement states:
The PAYE Regulations that support the change to the P46 “box C” are under review. Changes have been implemented into validations but approval is required from Solicitors Office before these can be published. Once approval has been given for these changes l will let you know. Guidance literature such as the Employers Helpbooks will be updated early next year.
The P46 is used by employers to notify HMRC of an employee who starts work without handing in a form P45. The form must be completed by the employee and given to their employer before the first pay day. Where the employee fails to fully complete or sign the P46 the employer must complete the form on the employee’s behalf and currently operate the Basic Rate (BR) code. This rule currently applies even where it is evident that the employee is liable to tax at the Higher Rate. As a consequence this leads to higher paid employees paying much less tax than they are due to and this can continue for a number of years. From April 2011 we have changed the code we authorise employers to operate in these circumstances from BR to 0T. Code 0T will deduct tax at basic, higher or additional rates as necessary. The validations on P46 box C submissions have been changed so that from April only code BR or 0T is permitted.
