Pennant Design: tax codes, starter checklists and NIC categories
Pennant Design Ltd runs a monthly payroll paid on the last day of each month. Three new employees start in September 2024 and must be set up before the September run.
- Rob, 64, reached State Pension age on 6 January 2024. Annual salary £32,000. He hands in a starter checklist confirming this is his only job and he has no P45.
- Aisha, 19, has been on a recognised Level 3 apprenticeship with the company since August 2023. Annual salary £15,000. Her starter checklist shows no other job and no student loan.
- Dev starts on 16 September 2024 on £28,000 a year. He brings a P45 showing tax code 1100L on a month 1 basis, with pay to date of £14,400 and tax paid to date of £1,300.
The company's employer's NIC bill for 2023/24 was £38,400.
1. For each of the three employees, state the tax code and basis to use and the NIC category letter, with your reasons.
Read the worked answer
| Employee | Tax code / basis | NIC category | Reason |
|---|---|---|---|
| Rob | 1257L, cumulative | C | Starter checklist confirms this is his only job, so the standard personal allowance applies from month 1 of his employment. Category C applies to employees at or over State Pension age: no employee NIC and no employer NIC, because secondary NIC stops at State Pension age too. |
| Aisha | 1257L, cumulative | H | Only job, so full allowance. Category H applies to apprentices under 25 on a recognised apprenticeship. She still pays employee NIC above the primary threshold, but the employer pays no secondary NIC on her earnings. |
| Dev | 1100L, month 1 | A | The P45 code must be used, and the month 1 marker on the P45 must be carried forward - a P45 instructs, it does not override the basis. Category A is the standard category for an employee with no special circumstances. |
Key traps: Rob's age removes his employer's NIC as well as his own - many candidates stop only the employee deduction. Aisha's category reverts to A from the start of the pay period containing her 25th birthday. Dev's code must not be converted to cumulative simply because 1100L looks like an ordinary code.
2. Calculate Aisha's employee NIC for the September 2024 payroll and explain the employer NIC position.
Read the worked answer
Monthly pay = £15,000 ÷ 12 = £1,250.00
Monthly primary threshold 2024/25 = £12,570 ÷ 12 = £1,047.50
Employee NIC (category H, same rate as A): 8% × (£1,250.00 − £1,047.50) = 8% × £202.50 = £16.20 for the month (about £194.40 over the year).
Employer NIC under category H = £0. Employers do not pay secondary NIC on the earnings of apprentices under 25 in a recognised apprenticeship. Without the relief it would have been 13.8% × (£1,250.00 − £758.33) = about £67.85 a month.
Points to note:
- The relief applies to the employer only - Aisha's own NIC is unaffected.
- The category letter is what tells HMRC the relief is being applied, so using A by mistake would mean paying employer NIC that cannot simply be reclaimed later without amending the FPS.
- The company's Employment Allowance is not relevant to Aisha: no employer NIC arises to be covered.
3. Dev's P45 shows pay to date of £14,400 and tax to date of £1,300. Explain how these figures are used and calculate his September PAYE.
Read the worked answer
The pay-to-date and tax-to-date figures are ignored. They only matter on a cumulative basis, where each payroll adds the year's earnings so far and deducts tax already paid. Because Dev's P45 carries the month 1 marker, September is taxed as a stand-alone month with no reference to anything earned earlier in the tax year.
Calculation:
- September pay = £28,000 ÷ 12 = £2,333.33
- Month 1 allowance for code 1100L = £11,000 ÷ 12 = £916.67
- Taxable pay = £2,333.33 − £916.67 = £1,416.66
- PAYE at 20% = £283.33
Under month 1, the same calculation repeats each month until HMRC issues a cumulative code. The effect is that Dev gets only one month's allowance each month, so any unused allowance from his previous job is never recovered through Pennant Design - only HMRC can release it, usually after the year end.
If the P45 had shown 1100L without a month 1 marker, the code would be operated cumulatively and the pay-to-date figure would be needed.