UK PAYE FAQ

The UK Tax Year runs from 6th April – 5th April annually.

PAYE stands for Pay As You Earn. PAYE is a system to collect tax from employees as they earn their wages/salary. PAYE was introduced in the 1940s and it ensures that the majority of taxpayers in the UK do not have to file a tax return.

Just because you are PAYE does not always mean that you do not have to file a return, however. This depends on whether you have other sources of income which are not subject to PAYE. For further details please see the FAQs on Self Assessment which outline when a tax return is required.

Each tax year, HMRC sends a Coding Notice (see below) to employers. These coding notices basically tell the employer how much tax to deduct from the employees' salary at each pay day.

The tax is deducted and paid over to the HMRC. The amount taken is shown on the employee's payslip.

A Coding Notice (CN) is a document issued by HMRC each tax year which advises the employer how much tax to deduct at each payroll date.

So, for example, if the employee pays allowable professional subscriptions annually and HMRC has been advised of this, it will adjust the personal allowance accordingly to ensure that relief for the subscriptions is given at source.

On the other hand, if HMRC has been informed that the employee has taxable income not subject to tax at source, it will estimate the amount of income the employee will receive in the tax year and adjust the personal allowance down to ensure that the tax due is collected at source.

Once the adjustments have been made, the CN is issued to employers. It is important to note that CNs are estimates. Employees also receive copies of the CN and should always review their CN to ensure that it is correct.

Finally, any corrections required to CN's tend to be “coded out” (i.e. adjusted) in the following year's CN.

As mentioned above, CNs are estimates of the forthcoming tax year's income. At the end of the tax year, HMRC runs reconciliations based on the information it holds. Formerly this was done manually. HMRC introduced the PNS computer system in 2010 to hold PAYE and National Insurance centrally. The NPS is also designed to automate reconciliations.

Due to a glitch, the annual reconciliations of 2008/09 were not completed as normally scheduled but rather were held over pending the launch of the NPS. This meant that reconciliations on 2010 were actually for 2 years which compounded any errors due to the estimated nature of Coding Notices.

Firstly you need to acquire a NIN (National Insurance Number). This is the unique tracker HMRC will use to keep tracker of your PAYE and National Insurance Contributions (NIC).

If you're British then you'll get your NIN automatically when you turn 16. If you come to the UK to work then you'll need to arrange a NIN. Taxback.com's Quick Start UK service can organise your NIN for you.

An emergency tax code is a code that your employer or pension provider uses on a special basis until HMRC has enough information about your income to enable HMRC to send them (and you) your correct code. It normally makes sure that you get the basic Personal Allowance (and therefore some tax-free pay) but doesn't take into account any other allowances or reliefs you may be entitled to. Your employer or pension provider will normally keep using it until HMRC tells them what your correct tax code should be.

The emergency tax code is set each year and is a number followed by the letter L. The number is the basic Personal Allowance (£7,475 for the tax 2011-12) divided by 10. The emergency code for 2011-12 is therefore 747L.

Yes, but the rules are complex and the class of expenses is very narrow. The key is that the expenses must be "wholly, exclusively, and necessarily" incurred for the employment. The last requirement, "necessarily" is the difficult part.

As an example of expenses which can be claimed (note that this is in generality and due to space requirements the complex rules have not been listed – your taxback.com

Account Manager will however be able to walk you through whether your expenses qualify:

• Temporary workplace – travel, accommodation, subsistence;
• Professional subscriptions to recognised bodies i.e British Medical Council, Institute of Engineering etc
• Tools which you are required to provide for your employment (e.g carpenter who must provide his own hand tools);
• Uniforms – cost and maintenance;
• Business travel – where employee must provide his own transport (note that if you use your own car then relief is given on the number of miles you travel – you should keep a record)

As a general rule you'll be due a refund in the following circumstances:

• You commence work part way through a tax year;
• You cease working part way through a tax year;
• You have a break in employment during a tax year;
• You incur expenses which are allowable against your employment income (see above);
• Your Coding Notice was incorrect;
• You were on an emergency tax code (see above).

Tax is circumstance specific. Taxback.com's account managers are happy to provide you with a free, no obligation estimate of any refund you may be due.

You should be aware of the following:

• P46 employee no P45: Issued to employees by employer when they start work and they have no P45 from a former employment;
• P45: Issued to an employee by the employer when the employee leaves that employment.
• P60: Issued to an employee by the employer at the end of a tax year. It is a summary of pay, tax deducted and National Insurance deducted.
• P11D: Issued to the employee by the employer at the end of the tax year. It reports all Benefits in Kind the employee has received during the tax year.
• P85: Can be found online. Completed by the taxpayer to advise HMRC that they are leaving/have left the UK.

You should keep any documents you receive from your employer (P45, P60, P11D) as these are required to file your claim. If you are claiming for tax deductible expenses then you should keep sufficient records to satisfy HMRC if it decides to carry out an audit on your file.