Tax code 0T is likely to be wrong in many cases
The HMRC data quality team have been investigating what they consider to be employer error on Real Time Information (RTI) Full Payment Submission (FPS).
One of those so called errors are the over 1/2 million new starters that have their first FPS starter record submission showing what is likely to be a default application for new starters where a P45 has either not been provided from a former employer, or maybe the new employer did not either ask for the P45 or for the employee at the same time as providing right to work information to complete the new starter declaration.
Some employers are shown to attempt to provide corrective new starter information in a subsequent payment when it is too late to meet PAYE RTI obligations.
So the employer is indicating to HMRC that the individual has two jobs, benefits from no free pay, is not Scottish or Welsh if applicable, and results in overpayment in many cases of income tax which will need to be repaid later.
The HMRC data quality team are attempting to visit and discuss a series of data errors with the UKs top 100 payroll data quality offenders. Some of the big name employers will appear on the list and be being contacted to see what action can be taken to reduce these default application errors. is it laziness, tardiness on the part of the impacted employees, or poor HR business on-boarding processes. Incorrect dates of birth and missing National Insurance numbers are also more common than considered reasonable for an employer who must have taken right to work checks prior to employment commencing.
Some of the more modern global HR systems may be poorly implementing in country (so glocal) product essential requirements.
The result, incorrect tax of individuals impacting well being and family finances, Employer HMRC dashboard misbalance, underpayments and debt collection activity, HMRC systems creating duplications due to changing and repeating starter information.
Even individuals on low earnings, part time workers, students end up paying tax they do not owe!
The HMRC requirements can seem strange. The starter checklist is very similar to the former P46 in look and feel, however, the requirements are slightly different! Whereas you either actioned a P45 or P46 pre April 2013, the RTI requirements since insist on a new starter declaration regardless. Even if a late P45 is going to eventually turn up, a correct starter declaration for first pay day is essential for happy employer and employee, else problems will be experienced.
Employers are allowed to adopt and incorporate the declaration into their own on-boarding formats, some do but some big names have not bothered so far.
Of course, if all else fails and if the employer has provided and asked, and the individual employee has refused to respond, then operate C tax code 0T/1. It is a once only chance of notifying new starter information to HMRC. Don’t report a change of information later. Good pay software will prevent, if it doesn’t, then you are heading for significant problems.
For good new employee experience, review your on boarding processes and ensure that your employees tax affairs are more accurate and a much friendlier experience.