Setting up the correct tax code when a new employee starts is essential, as even small payroll errors can lead to unnecessary tax overpayments and avoidable complications later on.

When hiring a new employee, employers need to ensure the correct tax code and starter declaration are set up in their payroll system. Using the wrong tax code can cause the employee to overpay taxes, so accurate information is essential. Much of this information is provided on the employee’s P45, so it is important to remind new employees to bring it on their first day.

If the employee does not have a P45, they can complete HMRC’s online PAYE starter checklist. A paper version is also available if they cannot access the online tool. Employers must retain this information in their payroll records for the current tax year and the following three years. Once completed, HMRC’s online tools can be used to determine the correct tax code.

The starter checklist should be used in cases where the employee:

• Has a student or postgraduate loan
• Has personal details that differ from their P45
• Does not have a P45
• Is temporarily working in the UK for an overseas employer

Once completed, the checklist can be submitted to the employer by email, post, or in person. There is no need to send it to HMRC.