Among your obligations as an employer when onboarding someone new is to ensure they are registered with HMRC for PAYE. If your new starter does not have a recent P45, you will need to make use of the HMRC starter checklist.
In this guide for employers, we explain the different steps that you must follow to register a new starter under the HMRC rules, including:
- checking that you need to pay your new starter through PAYE
- getting information to work out your new starter’s tax code
- finding out if your new-starter needs to repay a student loan, and
- registering your new starter with HMRC.
If you are employing staff for the very first time, you will need to register as an employer with HMRC before anything else. You can do this 4 weeks before you pay your new staff.
Do you need to pay your new starter through PAYE?
You will need to pay a new starter through Pay As You Earn (PAYE) if they will be earning £123 or more a week, £533 a month or £6,396 a year. However, you do not need to pay self-employed workers through PAYE, including freelancers or independent contractors.
As a general rule, someone will be classed as ‘self-employed’ if they run their own business and are responsible for both its success or failure, and as ‘employed’ if they work for you and do not take on any of the risks associated with running a business. When taking on someone new, you must always first ascertain their employment status to make sure that they are not self-employed. If you get this wrong, there may be pay extra Income Tax and National Insurance to pay, as well as interest and a possible penalty.
When it comes to agency workers, you do not need to operate PAYE if a worker is paid by the agency, unless that agency is based abroad and does not have a trading address or representative in the UK. For any temporary workers that you pay directly, you will still need to operate PAYE, provided they are classed as an employee. Even if you will only be paying an employee once, you will still need to put this through PAYE, although the way in which you do this is different to when you will be paying an employee on a regular basis.
What information do you need to work out their tax code?
You will need to obtain certain information from your employee so that you can set them up with the correct tax code or starter declaration on your payroll software, including:
- their full name and address
- their gender and date of birth
- their National Insurance number
- their employment start date
- the leaving date from their last job
- their total pay and tax paid to date for the current tax year
- their student loan deduction status, and
- their existing tax code.
You will usually get most of this information from any recent P45 that the employee is able to give to you from their last employer. A P45 provides a record of the amount an employee has earned in their previous employment and what taxes they have paid on their salary so far in the tax year. In this way, this allows the right information to be passed on to a new employer, to be inputted into their payroll software, to ensure that tax continues to be deducted from an employee at the correct rate. If your new starter has more than one P45, you should use the one with the latest date and give the other back to them. If these have the same leaving date, you should use the P45 with the highest tax-free allowance.
If the new starter does not have their P45, they will need to complete the ‘HMRC starter checklist’ for PAYE. Equally, if they left their last job before 6 April 2021, and so have not been in work for more than a year, their P45 will no longer be valid. This is because a P45 is only valid for the tax year in which it was issued. If you receive a P45 for a prior tax year then you should not use this, but should instead ask the employee to complete the starter checklist, in this way providing you with information about the current tax year.
The HMRC starter checklist can be found online at GOV.UK and can either be completed online and printed off to give to you, or downloaded and completed manually. The statement will ask the new starter for their personal details and student loan deduction status. It will also ask them to select one of the following three statements:
“This is my first job since 6 April and since then I’ve not received payments from Jobseeker’s Allowance, Employment and Support Allowance or Incapacity Benefit.” This statement is typically for those who have not had any form of work before, even part-time, and are now starting their first paid job, for example, school leavers.
“Since 6 April I’ve had another job but I do not have a P45 and/or since 6 April I’ve received payments from any Jobseeker’s Allowance, Employment and Support Allowance or Incapacity Benefit.” This statement is typically for those who have lost their P45 or did not receive a P45 from their last employer.
“I have another job and/or am in receipt of a State, Works or Private Pension.” If the employee receives payments from any pensions, they must not choose either statements A or B above, but rather statement C.
Once the HMRC starter checklist has been completed by the employee, this form must be forwarded to your payroll department, so that this information can be recorded in your payroll software. Having obtained your employee’s information, you can use the online tool at GOV.UK to work out their tax code and starter declaration to use in your payroll software, and to establish what else to do before you pay your employee for the first time.
The information obtained from a new starter and provided to payroll must be retained as part of your records for the current year and the following three tax years. HMRC may check your records to see that you are paying the right amount of tax for your employees, where your payroll records must show that you have reported accurately. If you fail to keep accurate records, HMRC may estimate what you have to pay and charge you a penalty.
Does your new starter need to repay a student loan?
If your new starter has an outstanding student loan, you may be responsible for making deductions for repayments for this. You should make student loan deductions if either:
- your new starter’s P45 shows that deductions should continue
- your new starter tells you that they are repaying a student or postgraduate loan, for example, on their HMRC starter checklist, or
- HMRC sends you either form SL1 or form PGL1, and your employee earns over the income threshold for their loan. You will need to check these thresholds.
Even if your new starter has a P45 from their last job, you should ask them if they have a student or postgraduate loan, where they may have both. You must record their answer in your payroll software. If they finished their studies after 6 April in the current tax year, they will not begin to repay their loan until the following tax year. You do not need to calculate their loan recovery repayments as your payroll software will do this for you.
If your new starter has a student loan, you should ask them to sign in to their repayment account to check which plan to use for deductions or to contact the student loans company. If they are still not sure, use should use Plan 1 in your payroll software until you get an SL1. Where the new starter is on more than one plan, start the student loan deductions for the plan with the lowest recovery threshold until you receive an SL1.
The possible student loan plans are as follows:
- The employee will have a Plan 1 if either they lived in Northern Ireland when they began their course of studies, or in England or Wales and began before 1 September 2012
- The employee will have a Plan 2 if they lived in England or Wales and began their course of studies on or after 1 September 2012
- The employee will have a Plan 4 if they lived in Scotland and applied through the Students Award Agency Scotland (SAAS) when they began their course
- The employee will have a Postgraduate Loan if either they lived in England and began their Master’s course on or after 1 August 2016, lived in Wales and began their Master’s course on or after 1 August 2017, or lived in England or Wales and began their Postgraduate Doctoral course on or after 1 August 2018.
How do you register your new starter with HMRC?
To register your new starter with HMRC, you will not be required to send the completed HMRC starter checklist, but you will instead need to include their details on what is known as a Full Payment Submission (FPS) the first time that you pay them. You can use the information from the employee’s P45 or completed checklist to help fill this in. You can then use your payroll software to send an FPS on or before their first payday.
On this first FPS, you will need to include the following:
- the information that you have collected from the employee
- the tax code and employee starter declaration that you have worked out
- the payments and deductions made since they started working for you, for example, Income Tax, National Insurance contributions and student loan deductions, but not including figures from their previous employment.
For any employee that you will only be paying once, you will need to operate PAYE differently. In these circumstances, you must set up a payroll record with the employee’s full name and address, and if you give them a payroll ID, you must ensure that this is unique. When you send your FPS, you will need to use tax code ‘0T’ on a ‘Week 1’ or ‘Month 1’ basis, putting ‘IO’ in the ‘Pay frequency’ field, and do not put a start or leaving date. You must then give the employee a statement showing their pay, before and after deductions, and the payment date, for example, a payslip or letter. You do not need to give them a P45.
What was the P46 and what has replaced this?
The P46 was a tax form completed by new-starters who did not have a P45. This has been replaced with the HMRC starter checklist. In the same way as the P46, the starter checklist allows employers to add an employee to PAYE and calculate a temporary tax code for them.
It is important, however, that when asked to complete the HMRC starter checklist, the individual selects the correct employee starter declaration, or they may end up paying either too much or too little tax under an emergency code. The starter checklist will help the employer to deduct the most accurate tax and National Insurance if they do not have the correct tax code from HMRC, although it may not necessarily be exact and require amendments in later payslips when the correct code is sent.
If HMRC has sent you a tax code, you must use that code if your employee gives you a P45 or starter checklist after you have first paid them, deducting any student loan repayments from the date that they started working for you. You may need to update your payroll records if your employee later produces a P45 after you have registered them with HMRC. If the employee gives you a P45 from the outset, they will not also need to complete the HMRC starter checklist. This is because the P45 contains all of the information an employer will need to set up a new-starter on payroll with the right tax code. Any changes required to this code will be issued by HMRC directly to you as the employer.
HMRC Starter Checklist FAQs
What is a HMRC starter checklist?
The HMRC starter checklist is a form that new employees will need to complete if they don’t have their P45 or left their last job before 6 April 2021. Once completed, this must be sent to the employer’s payroll department.
How do you fill in a starter checklist?
The HMRC starter checklist can either be completed online and printed off, or downloaded and completed manually. This asks the employee for their personal details and to tick an employee starter declaration as to their last job and benefits received.
What does starter checklist mean?
The starter checklist is a form completed by a new-starter who does not have a P45 or was last employed prior to 6 April 2021. This will enable the employer to work out their tax code and complete payroll.
What do I need if I don't have a P45?
If you don’t have a P45, you can complete the HMRC starter checklist, providing your employer with your personal details, a declaration as to when you last worked, any benefits or pension received and your student loan deduction status.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert professional advice should be sought.