6.1 Module Introduction and What to
Do When a New Employee Joins Your Company
We dedicate this module to employees
starting within your company and what you need to report to HMRC in order to
stay within relevant employment and tax deduction guidelines.
Making sure you keep HMRC up to date
with accurate figures and information is vital for a business and if you do not
do this you run the risk of financial penalties and trouble for your company.
It is therefore important to know exactly what you need to do in relation to
HMRC when a new employee starts to work for you.
Reviewing what you need to do when a
new employee joins your company
When you offer a new position, you
will generally have a period of around a month or so before you actually have
that person starting work for you. This is because they need to
work their notice in their existing job if they have one, and you need to have
interviewed them and asked for references before a start date is offered in
writing and ultimately accepted.
When sending out the offer letter, a
New Starter Form is often sent at the same time. This varies from company to
company in terms of what information is gained; however, generally speaking,
this is a record of personal details, next of kin, contact telephone numbers, previous
employment (although this is not always needed if you have an application form
or CV on record), bank details to set up payment, and authorising signatures.
This is kept on file in the employee's personal records and kept secure and
confidential - whether that be paper-based or electronic. Employers must
register each new employee with HMRC by including their details on the next
Full Payment Submission (FPS) the first time they pay their wages.
The new employee should provide a P45
form, which is an imperative part of setting up a new employee on your payroll
system and reporting the correct information to HMRC.
The
P45 will show how much tax your new employee paid during their last job. The
leaving date is also entered onto the P45, which allows HMRC to see that there
has been no gap in tax deductions and to continue deductions in the correct
manner.
In the event that a new employee does
not have a P45 form (if he or she has never worked before), update their
details using the Starter Checklist for PAYE issued by
HMRC. If the new employee has more than one P45 form (they may have held
two previous jobs in which they worked simultaneously), use the latest
one. If more than one P45 form has the same leaving date, use the one that has
the higher tax-free allowance. It is important to only store the P45 that you
have actually used to report to HMRC, to avoid confusion and to adhere to Data
Protection laws.
Once you have your new employee's
details, you need to work out their tax code and starter declaration. You can
use this HMRC Tool to determine the new employee's tax code. Also,
ensure that you assign a unique payroll ID to each new employee. Once you have
entered this information, keep a copy on your new employee's file in a secure
manner, which we will discuss a little more later on in this module.
6.2 Why HMRC Needs
Information Relating to Employment Changes
It is just as important to inform
HMRC of any changes to employment as it is to inform them about new members of
staff.
HMRC needs to be kept up to date with
any changes to employment, whether that is a person leaving a job, starting a
new one, changes to their hours or salary, or their personal circumstances overall,
in terms of their employment.
HMRC governs income tax and National Insurance contributions for all employees and employers within the UK, as well as offering help and guidance on other employment-related matters. Whether you are self-employed or you are employed and paying tax through PAYE, HMRC is at the centre of everything a business does in terms of payroll; leading on policy and implementation.
When an employee leaves a job and starts employment with a
new company, it may be that their pay situation changes - for example, they may
now earn more or less, and as a result, their tax code needs to change to
reflect how much tax-free allowance they are entitled to, and to ensure they
pay the correct amount of tax and National Insurance for their new
circumstances. If you do not give HMRC the correct information then incorrect
deductions are made. This causes later problems, so it is important to keep
clear channels of communication very much open with HMRC.
6.3 Student Loan
Deductions - What to Do
Student loan
deductions are mandatory if an employee earns over a certain threshold and you
are bound to encounter employees who need these deductions made.
An employer needs to deduct student
loan repayments from the salary if any of the following circumstances apply:
- -The new employee's P45 form indicates that deductions should
continue
- -The new employee informs you that they're paying off a student loan
- HMRC sends you a PGL1 or SL1 form and the employee is earning over
the threshold income (HMRC will automatically issue these notices when a
new employment is notified, even if deductions have already started)
Ask the new employee for the type of
student loan that they're paying and feed this information into your payroll.
The software will automatically deduct the correct amount from the total
income.
For the latest
information on the plan types and thresholds, click on the links below.
Government website guidance for
employers on student loan repayments: www.gov.uk/guidance/special-rules-for-student-loans
Government website guidance for
students repaying a loan: www.gov.uk/repaying-your-student-loan
How will you know to make deductions?
This will be if your employee's P45
states that they are paying a student loan back and it needs to continue, your
new employee tells you the same, or HMRC sends you notification as detailed
above, and your new employee is earning the correct threshold to begin
repayments.
It is worth mentioning that you
should always check changes to thresholds and plan types across each new tax
year, just in case any adjustments are made.
If your employee does need to have
student loan repayments deducted from their wages, you simply enter this into
your payroll software and the hard work will be done for you in terms of
calculations and deductions. This is then reported to HMRC when you make your
full payment submission on their first wage month.
Note
- There are a few rules which can cause anomalies: if you are sent a court
order telling you that you must collect student loan debt from an employee's
wages, if you change your employee's pay frequency or if they have more than
one job with you. In these cases, you need to contact HMRC for more in-depth
guidance in order to make the correct deductions from their wages.
How do you know when to stop making deductions?
HMRC will tell you so by sending you
an SL2 form. If your employee asks you to stop making deductions, this is not a
green flag for you to do so - only HMRC guidance should be accepted in this
case.
6.4 Ensuring Your
New Employee is Paid Correctly and On Time for Their First Salary Payment
When a new employee
joins a company, a common concern, amongst fitting in generally, is whether or
not they are going to be paid on time for their first month's work.
The worry comes from the amount of
paperwork and communication which needs to be completed and whether it will all
come together in time. This is a perfectly legitimate concern for a new
employee, and, as their employer, it is your responsibility to ensure that
everything is in place for their first salary payment; as well as having a responsibility
to report these employment changes to HMRC in that first month via your full
payment submission.
We have discussed this before, but it
is so important to ensure it is done correctly - deal with new
starter paperwork immediately, communicate all changes to those who need to
know, e.g. your outsourcing personnel, accountant/bookkeeper, etc., and include
new employees in your full payment submission for that month to ensure pay and
recordings are done correctly. Problems can tend to occur more within
larger-scale organisations, simply because there is so much communication
required, which is where fail-safe mechanisms are so important. The
consequences of not doing this are costly and time-consuming, as we have
mentioned before, and causes unwanted distress to a new employee.
6.5 Storing New Employee Information
Any information you
send to HMRC needs to be stored in a safe and secure manner and must adhere to
confidentiality rules and Data Protection laws.
How you do this is a personal
business decision and one which needs to be efficient for you as a business,
whilst adhering to the rules mentioned above. If you do this in a paper-based
manner, then information needs to be locked away, the keys stored in a safe
place, only accessible by those who have permission to do so, and filing
cabinets need to be fire-proof, to protect these important documents.
Any
information needs to be kept for three tax years after the one it pertains to,
ensuring that Data Protection is adhered to - e.g. information is accurate, up
to date, and only kept for the purpose it is required for.
If you store information in a
computerized manner, e.g. you scan paper forms and destroy them with a shredder
and confidential waste mechanisms, then these should be password protected,
encrypted, and password access should only be given to those who require it for
their employment reason. Again, passwords should be changed regularly to keep
them secure.
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