Understanding the starter and leaver process amongst small and medium-sized enterprise employers and employees

Question 1

1.  Executive Summary

Accepted Answer

1.1 Introduction

When employees start and leave their employment, issues sometimes occur due to the submission of incorrect, incomplete, or delayed information during the starting and leaving process. These issues can be caused by employers and employees and can lead to the wrong amount of tax being paid. This is a major source of customer contact to HM Revenue and Customs (HMRC), and a major pain point for many of HMRC’s customers.

HMRC therefore commissioned this research to understand experiences of the starting and leaving process, according to small and medium-size enterprise (SME) employees and employers. Insights from this report will be used to inform the development of initiatives to support customers to get this process right.

1.2 Methodology

To explore experiences of the starter and leaver process in detail, 30 in-depth interviews were conducted with SME employers and employees between 1 September and 27 September 2023. Twenty interviews were conducted with SME employers with a PAYE scheme who had recruited a new employee within the past 6 months. Additionally, 10 interviews were conducted with employees who had left or started new employment within the last 6 months. Interviews were up to one hour in duration and conducted by telephone or Zoom. Due to this being a qualitative study, the findings are intended to provide rich insight into the experiences and themes that emerged from the sample interviewed and should not be generalised more broadly.

1.3 Key Findings

1.3.1 SME employee experiences of the starter and leaver process

Employees typically found the starter process to be more involved than the process of leaving a company due to greater employee input required and some experiencing tax code issues at this stage. A successful onboarding journey was described as quick and easy, and resulted in employees being enrolled on the correct tax code, while key to a successful leaver journey was receiving leaver documentation (the P45) in a timely manner. Employees commonly felt it was easy to complete HMRC’s starter checklist (or the employers’ equivalent) and other enrolment forms, with little or no support, particularly if they had received their P45. While employees reported the leaver journey to be more straightforward, any issues during this process could subsequently impact the employee’s next new starter process and contribute to tax code errors.

When tax code errors occurred, employees often contacted their employer and expected them to provide support. They were therefore dissatisfied when employers directed them to HMRC for a resolution. Experiences with HMRC typically left employees feeling further frustrated as accessing information and support was seen as difficult and time consuming. Within the sample, those who regularly changed jobs or had experienced tax code issues in the past tended to be more proactive in resolving issues, readily reaching out to HMRC. The main impact of tax errors for employees was the added stress and frustration caused, as well as the financial impact on their salary. As a result, a few employees had become more proactive in managing their tax affairs and implemented strategies to avoid another tax code issue in the future.

1.3.2 SME employer experiences of the starter and leaver process

SME employers saw the starter and leaver journey as being interdependent, with successful onboarding of new starters reliant upon a well-executed leaver process. Thus, the ideal starter journey was felt to be underpinned by the availability and timely provision of accurate information, which requires the former employer to have fulfilled their leaver obligations. Larger employers tended to have more complex onboarding and leaver processes, with this having no discernible impact on the quality of starter and leaver processes within this small sample.

A range of employers interviewed used payroll agents (payroll agencies and accountants) to ease the burden on the business. The service provision employers had in place ranged from full payroll to payment processing only. Employers often appreciated agents’ expertise and the time and cost efficiencies provided, however, some reported issues, such as agents frequently making mistakes.

Most SME employers had at some point encountered tax issues when onboarding new employees, with the use of manual starter forms and delays receiving necessary information (the P45) being key pain points. However, some employers were seen to have a higher propensity for errors than others, due to high staff turnover, having a temporary workforce and limited payroll resources. The impact of tax errors on employers was primarily practical, resulting in a greater time burden on the business, as well as potential HMRC fines and damaging the employer and employee relationship.

1.3.3 Improving the starter and leaver journey

When prompted, employers and employees offered 3 key suggestions for HMRC to improve the starter and leaver journey, as described below.

Greater digitalisation: Greater digitalisation was commonly desired among both groups and anticipated to make the starter and leaver journey more efficient and less prone to error. Suggestions included enabling employees to complete and submit the starter checklist online, sending it directly to HMRC and making P45s fully digital, albeit with the option of manual, paper-based methods to ensure the starter and leaver process is accessible for everyone.

HMRC proactivity: Both groups wanted HMRC to be more proactive in its communication and activities to support the starter and leaver process. Employees wished to receive notifications from HMRC when their P45 had been received and of changes to their tax code and for HMRC to more strongly encourage employers to send P45s within a specific timeframe^{[footnote 1]}. Employers suggested that making the use of the HMRC starter checklist mandatory and streamlining systems to reduce repetitive data inputs, could help to reduce errors. They also thought HMRC could be more proactive in updating tax records, cross-checking employee information to ensure tax codes are correct, and quickly resolving errors when these occur.

Improved HMRC information and support: There was thought to be opportunities for HMRC to improve the quantity and clarity of the information and support it provides. Specifically, both groups felt there was a need for greater education and guidance for employees on the starter and leaver process, including steps and timelines involved and the distribution of responsibilities.

1.3.4 Access to and preferences for receiving tax information

Both employees and employers saw the HMRC website as the key source of tax related information, although thought it could be difficult to navigate, digest and find relevant information. Despite reports of long waiting times, HMRC’s telephone service was viewed as the best route to access accurate information amongst participants. Third party websites were also used as a source of information, as well as professional networks more widely among employers.

Employees were mostly in favour of receiving email notification of any relevant changes regarding PAYE. Employers had divergent views on the best way to be updated on changes to PAYE, suggesting a mixed approach (combining post and email) would be best placed to ensure updates are received.

Both groups were interested in an advanced online chat function whereby employees and employers can interact in real-time with an HMRC customer service representative or chatbot and resolve issues directly through this digital channel, removing the need to call HMRC. This highlights a lack of awareness of the current digital support offer.

Some employees also wanted to view their tax codes via an online account. This suggest that there are opportunities for HMRC to increase awareness of its Personal Tax Account, where taxpayers are able to do this, and the benefits of employees registering.

Question 2

2.  Introduction

Accepted Answer

2.1 Background

When employees start and leave their employment it is recorded by employers on their PAYE system, with new employees required to provide information to their new employer to calculate the amount of tax they should pay. This information is subsequently provided by employers to HMRC and is used to calculate tax codes, tax amount, and net income for employees.

These issues can be caused by employers and employees and can lead to the wrong amount of tax being paid. This is a major source of customer contact to HMRC, and a major pain point for many of HMRC’s customers.

HMRC therefore commissioned this research to understand the starting and leaving process, according to employees and employers. Insights from this research will support improvements to the starter and leaver process.

2.2 Research Aims

The overall aim of this research was to understand experiences of the starter and leaver process among small and medium-size enterprise (SME) employers with up to 250 staff and employees, to inform the development of initiatives to support customers to get this process right. The SME group’s views are required in particular because they are not currently captured by other mechanisms such as via HMRC’s customer compliance managers and HMRC’s existing large business forums and stakeholder groups.

Specifically, the research aimed to explore the following areas and research questions.

Processes followed by SME employers and employees when they start and leave employment (P45 process), including:

how does the process work and who does what
experience of previous job move (for employees)
what works well and what are the issues
are they aware of the starter checklist^{[footnote 2]} and do they follow it
what is the role of payroll providers in organisations

Understanding of the correct process and impacts when the process goes wrong, including:

what are their expectations of employee, employer, and HRMC responsibilities in this process
what have been their previous experiences of the process
have they experienced the process go wrong and if so, has this impacted how they engage with HMRC
do they think HMRC could be doing things differently

Access to and preferences for receiving information, including:

do they know where to go for information
do they feel updated when information changes
what are their preferences for engaging with HMRC on issues and updates

2.3 Method

The research was based on a qualitative approach, as it sought to identify rich insights and themes, rather than generate statistically representative findings.

To explore experiences of the starter and leaver process in detail, in-depth interviews were conducted with SME employers and employees. Interviews were up to one hour in duration and conducted by telephone or Zoom.

Twenty interviews were conducted with SME employers with a PAYE scheme who had recruited a new employee within the past 6 month. Additionally, 10 interviews were conducted with employees who had left or started new employment within the last 6 months. These employees were not linked to the employers who were recruited. Participants were recruited through free-find.

The fieldwork period took place between 1 September and 27 September 2023.

2.4 Sample

In total, 30 employers and employees were interviewed who had experience of the starter and leaver process within the past 6 months. The following table provides a breakdown of the sample achieved.

Table 2.4.1 Research Sample

SME employers with a PAYE scheme who have recruited within the last 6 months (N=20)	Sample
Less than 10 employees	4
10-49 employees	7
50-99 employees	4
100-250 employees	5

SME employees who have left or started new employment within the last 6 months (N=10)	Sample
Multiple PAYE employment	6
Previous experience with tax codes issues in new employment	6
Working while claiming pension	1

Employers ranged in terms of business sector, turnover and whether they outsourced activities to a payroll agency. Additionally, employers and employees interviewed were diverse in age, ethnicity, and gender.

A more detailed sample breakdown is included in Appendix A and Appendix B.

2.5 Interpreting this report

It is important to note that this was a qualitative research study, based on a relatively small sample size. This means that while the findings provide insight into the experiences and themes that emerged from the sample interviewed, they may not fully represent all SME employee and employer views and are not designed to be generalised more broadly.

Question 3

3.  Understanding of responsibilities during the starter and leaver process

Accepted Answer

3.1 Perceptions of employee and employer responsibilities

Employees and employers generally agreed on the distribution of responsibilities during the starter and leaver process, perceiving the weight of responsibility to be on employers to get things right. Employers highlighted that over the course of the new starter process, while responsibility starts with the employee, it ultimately ends with the employer.

“It does scare you that sometimes you might, by mistake, get something wrong, that we’re responsible. It’s a big responsibility for a person in business to assume, and unknowingly if they make a mistake, they could get penalised for that.” SME employer, £150,000 to £250,000 turnover, less than 10 employees

Upon joining a new company, employees mostly act as passive couriers of information. Employees and employers interviewed reported that employees were responsible for providing their employer with identification, tax documentation (P45), proof of the right to work in the UK and accurate personal information. They were also expected to complete new starter forms within the timeframe set by the business.

After this information has been provided, there was the perception that employers have ‘100%’ of the responsibility to ensure the employee is onboarded correctly and in a timely manner. Employers’ responsibilities were said to include ensuring employee information is accurately inputted, enrolling them into PAYE and updating HMRC. Employees interviewed also felt that employers should check that employees are on the correct tax code and provide information and support to help them to complete new starter forms.

On leaving the business, employees were said to be responsible for providing notice, completing relevant leaver forms and checking that tax liabilities continue or re-start as appropriate. The employer was seen as responsible for discharging leavers from PAYE and providing a P45 and an accessible payslip.

Among those interviewed, employees additionally felt that employers should be responsible for resolving tax code errors and other payroll related difficulties with HMRC. Some employers similarly believed it was their responsibility to help employees resolve tax issues, while others saw this as being the employee’s responsibility.

“I think you absolutely need to help your employee as much as possible within the limits of what you’re able to do.” SME employer, £250,000+ turnover, 100 to 250 employees

Only some employees felt that it was their responsibility to contact HMRC directly to fix issues if a tax error occurred, and very few employees felt it was their responsibility to contact HMRC when starting or leaving a job.

Findings therefore suggest that there is opportunity to clarify responsibilities and increase awareness of employee and employer responsibilities during the starter and leaver process.

3.2 Perceptions of HMRC responsibilities

Overall, there was some uncertainty amongst employees of HMRC’s responsibilities during the starter and leaver process, while employers tended to be more confident in their knowledge.

HMRC was seen as being responsible for storing accurate records of the forms they receive, ensuring individual’s tax codes are correct and updated where necessary and generating and sending P45s to the employer. HMRC’s responsibilities were also thought to include providing advice, guidance and support during the starter and leaver process and resolving any issues and queries, as soon as possible.

Notably, while HMRC was seen as responsible for ensuring all employers are aware of the starter and leaver process, some felt it would be beneficial to communicate this to employees as well.

Employers often felt that HMRC should play a more proactive role in ensuring employee tax codes are correct, with some employees agreeing with this view. These participants thought that HMRC should actively check that the documents received are correct and review the dates and previous tax and national insurance records, in order to cross-check information and ensure the tax code is correct.

“I don’t think they (HMRC) are required to do anything. They give you the necessary paperwork and you do it, fill it in and submit the details as required.” SME employer, £10,000 to £60,000 turnover, less than 10 employees

“HMRC should be responsible for the changes… if a new joiner doesn’t have a P45… HMRC should generate P45 to give correct code (so employee does not need an emergency tax code). If there needs to be a change of code… HMRC should double check that it’s correct, once it’s switched to correct code (rather than the employer having to correct it on their system).” SME employer, £85,000 to £150,000 turnover, 100-250 employees

Question 4

4.  SME employee’s experiences of the starter and leaver process

Accepted Answer

4.1 Employees’ experiences of the starter process

Employees typically found the starter process to be more involved than the process of leaving a company. This was due to greater employee input being required and some experiencing tax code issues at this stage.

However, when successful, the process of onboarding with a new company was said to be quick and easy and resulted in the employee being enrolled on the correct tax code.

The ideal process involved the employee receiving the necessary documents from their previous employer (P45) and their new employer (starter checklist or employer equivalent) in order to complete their new starter forms. Employees are able to complete these forms correctly and independently, or with support from their employer if needed. The employee then sends their completed forms, identification, right to work documents and P45, if received, to human resources (HR). Lastly, the correct tax code is calculated, and the employee is paid correctly.

“(There was) nothing I really had to action or I had to like stress about, so I would say it was a very, seamless process in that sense.” SME employee, 29 years old, employed full time, also self-employed

“It’s not difficult, it’s pretty simple. The information they need, the tax code… If you have the P45 or P60 and these documents with you, it’s quite easy to understand.” SME employee, 42 years old, employed full time, has 2 or more jobs

The employee onboarding journey was often reported as being fairly straightforward, particularly if the employee had received their P45 to help them complete the necessary documents. However, these documents were not always received in time to provide information for the starter process. This, alongside other factors, could lead to tax code issues and the pain point of paying too much tax and having to resolving the problem (see 4.3).

“Well, in theory it should have been quite easy because I worked my notice period and left. I should have received a P45 that then should have gone to the new employer and then my tax code should have been adjusted accordingly. But, of course, I didn’t receive a P45, so consequently (the new employer) didn’t get a P45.” SME employee, 60 years old, employed full time, has 2 or more jobs

4.2 Employee’s experiences of completing the starter checklist

Employees interviewed typically found the starter checklist and other enrolment forms easy to complete during the onboarding process, with some using their P45 or P60 to help them. The HMRC starter checklist and employer starter forms were felt to be similar, though some employees thought the HMRC checklist had more detail than their employer’s version.

Employees reported that these forms were provided via post or in person. Notably, some employees would have preferred digital forms as these were seen as easier to complete and more traceable as they leave an electronic trail.

Among those interviewed, there were variations in the level of support that employees received from their employer when completing the new starter forms, although most felt that support was not needed. Some were sent the relevant forms to complete independently, whilst others completed the forms in the employer’s offices with a representative available to help. Employees generally believed that support from the employer was available if required.

4.3 Employee’s experiences of the leaver process

Employees generally perceived the leaver journey as being more straightforward than the starter process due to less employee involvement being required.

In terms of the process, this was said to typically comprise of the employee providing their resignation notice to the employer via email or letter and then working their notice, although those on short term contracts were not required to do so. Some participants had contact with HR or payroll departments during the leaver process. On leaving the company, employees should subsequently receive a P45 form with their last payslip from the employer via post or email. Among those interviewed, there was little recollection of employees having to complete a leaver’s form.

Employees reported that key to a successful journey was receiving leaver documentation in a timely manner, namely the P45 and written confirmation of the gross amounts and deductions in their last payslip.

While most had experienced straightforward leaver processes, some reported that pain points could occur. These included employees not receiving a P45 in time for a new job start or not receiving this at all and P45s containing incorrect information. Participants also reported not being discharged from a previous employers’ payroll and PAYE system and being unable to contact their previous employer due to no longer having access to employee portals.

As highlighted by employers interviewed, due to the interlinking nature of the leaver and starter process (see 5.1), these issues during the leaver process can problematically contribute to a more difficult employee starter process and tax code errors.

4.4 Employee’s experiences of tax code issues

This section reports on employee’s experiences when tax code issues arise during the PAYE process. This includes causes of tax code issues, typical employee journeys to resolve these and the impact of experiencing a tax code error.

4.4.1 Drivers of tax code issues

Employees reported that whilst some tax code issues were the result of information errors, others had occurred due to changes in employment circumstances or problems with timing, meaning HMRC did not have the right information at the time that it was needed.

During the research, several scenarios were identified that could contribute to tax code issues and the negative implications of these. These included:

employees moving from part time to full time employment
overlap in pay between former and new employment
gaps between employment (1 month or more)
employment benefits from a previous job being calculated within their tax allowance
not receiving a P45 from their previous employer

Notably, employees did not always understand the cause when a tax code issue had occurred.

4.4.2 Employee resolution journeys

When a tax issue was identified, employees described taking one of 3 routes to resolve the issue.

After noticing an error with their pay, employees often contacted their employer and expected them to provide support, as they perceived the employer to be responsible for the issue. In these instances, participants reported that some employers would resolve the issue themselves, resulting in the employee receiving the correct pay. Most participants felt that this was the most appropriate way to resolve the issue.

Alternatively, some employers directed the employee to HMRC. The employee was therefore required to contact HMRC directly and explain the issue, in order for HMRC to resolve the problem and correct the employee’s pay. This was experienced to be the lengthiest process, with one respondent having to go back and forth between the employer and HMRC several times to resolve the issue.

Participants who were more proactive would contact HMRC straight away to resolve an issue, without going to their employer first. These employees tended to be those who regularly changed jobs, had experienced tax code issues in the past or had complicated tax backgrounds, such as previously living abroad, or having multiple jobs.

4.4.3 Employee’s experiences of resolving tax code issues

When employees were directed to HMRC to resolve an issue, they often perceived their employer as unhelpful for leaving them to sort out the problem themselves. Instead, employees typically believed that the employer should help them to find a resolution.

Furthermore, after being redirected, employees often had difficulties finding information regarding their tax code issue and reaching HMRC, leading to greater frustration. Participants typically found the process to be time consuming and complained that tax code issues could take weeks or months to be resolved.

Those that used the HMRC website frequently described the information pages as unclear and overwhelming, while finding the chat function to be unhelpful and difficult to use. As a result, many turned to third party websites or phoned HMRC to resolve the issue.

Calling the HMRC phone service was often felt to be a relatively simpler and quicker route to resolving an issue as employees could speak to an agent directly. Participants appreciated that agents took a supportive approach, and that they could use the opportunity to seek support in managing their tax affairs more broadly, for example, by splitting their personal tax allowance across additional jobs.

“I prefer to call HMRC. I find it overwhelming as there is too much information online (HMRC website)… speaking to one person is much easier than wading through options that don’t apply to you.” SME employee, 60 years old, employed full time, has 2 or more jobs

However, several reported that HMRC tax agents were often difficult to reach due to long waiting times and there were experiences of being passed around to several agents before speaking to someone with the right expertise.

“It’s always very difficult to reach them (HMRC)” SME employee, 47 years old, employed full time, has 2 or more jobs

Case Study: SME employee’s experience of resolving a benefits tax issue

Robert is 37 years old and has multiple jobs. He is “not super confident” in managing his tax affairs due to employment gaps in his financial history from working abroad in the past.

When Robert started at his new job, his tax allowance had decreased because his previous employer had not removed him from the company car benefit scheme.

He phoned HMRC, browsed forums and the government website, and eventually he found the relevant government digital service to allow him to declare his company car as returned. However, the process was confusing, it was difficult to find relevant information and the reasoning for the tax allowance decrease was not provided in the initial letter.

In the future, Robert will likely choose not to receive taxable job benefits and will triple check any childcare or healthcare benefits provided with a future job.

4.4.4 Impact of tax issues on employees

Employees who had experienced tax code issues typically paid too much tax. The financial impact could be a source of concern as employees needed to manage their salary deficit until they received a tax rebate. Some employees had to use their savings and borrow money during this period.

That said, for many employees the main impact was the added stress and frustration caused by the issue. Employees experienced frustration that the error had occurred, and they had not been paid the correct amount. Participants reported that it could be stressful when trying to resolve the issue as it takes time and focus away from their new job. Some also voiced a sense of dread at the prospect of contacting HMRC directly due to past negative experiences.

“It was just annoying because I felt like I’ve been working a lot and then a large chunk of it got taken out, but I wasn’t even earning enough to have it taken out.“ SME employee, 19 years old, employed part time, has 2 or more jobs

“When you’re working, you’ve always got it in the back of your mind, oh my tax code is wrong this month, I’m going to get charged more, and I’ll have to sort it out next month.” SME employee, 31 years old, employed full time, has 2 or more jobs

For some employees, their experience of resolving a tax error had led them to adapt their approach and play a more proactive role in managing their PAYE enrolment during the starter process. These participants described several strategies they employed to avoid these issues in the future. These included phoning HMRC when changing jobs, carefully checking paperwork and payslips, checking with HR that they are on the correct tax code and questioning the reason for being on the tax code provided. Lawrence is an example of an employee who has experienced multiple tax code issues and has implemented strategies to try and avoid these (see case study below).

Other employees did not take a proactive approach to avoid another tax code error in the future. Some felt they should not be required to play an active role as their employer and HMRC are responsible for ensuring tax codes are correct. Others had had a straightforward, positive experience of resolving past issues and so were not too concerned if a tax issue were to occur again. Another contributing factor was employees not understanding the source of the issue, meaning they did not know how to avoid it in future.

“I think if (HMRC) would just check previous earnings history, they’d be able to see that like I obviously should not be paying this much tax.” SME employee, 19 years old, employed part time, has 2 or more jobs

Case Study: SME employee’s experience of tax codes issues and strategies to avoid these

Lawrence is a foreign national who has had multiple full time and part time jobs. He has frequently experienced issues transitioning jobs and has had to dip into his savings when tax code issues occur. Tax issues have taken between one to 4 months to resolve.

As a result of these experiences, Lawrence now always emails his new employer a week after submitting his new starter forms, to check they have set him up on the system correctly. He also checks his tax code on his first payslip when starting a new job and compares it to his colleagues.

Most recently, Lawrence went straight to his employer’s HR department when he saw a “weird tax code” on his pay slip and found he was overpaying tax. Although he was then put on the correct tax code, he found it difficult to receive the rebate. HR were not responsive, and HMRC told him they could not do anything and to contact HR again. It took him one month to receive the refund.

“I don’t understand why we should have the stress…to make sure we understand how HMRC works. It’s the employer’s job to make sure they collect all the right data, and make sure they set everything up correctly.”

Question 5

5.  SME employer’s experiences of the starter and leaver process

Accepted Answer

5.1 Employers’ perceptions of an ideal starter and leaver journey

SME employers interviewed saw the starter and leaver journey as being interdependent, with successful new starter onboarding being reliant upon a well-executed leaver process.

“It all has to come together nice and seamlessly.” SME employer, £250,000+ turnover, 100 to 250 employees

For employers, the ideal employee starter journey therefore begins with the provision of timely and accurate information from the new employee. Critically, this required the former employer to have met their leaver obligations and for the employee to provide this information to their new employer within a timeframe that aligns with their payroll system. From there, employers reported using HMRC’s starter checklist or their own in-house forms, based on the starter checklist, to enrol the new starter onto their HR and payroll systems.

Similar to the perspective of employees, employers viewed the leaver journey as much more straightforward. This process was said to involve the employee submitting their resignation in a timely manner and then the employer processing the final payment, producing a P45 and discharging the employee from their systems.

Employers also highlighted that a successful process included having solid foundations, whereby the business already had an established PAYE and payroll system and a well-functioning, experienced payroll team/payroll agent.

5.2 Starter and leaver processes implemented by SME employers

Variations were seen between the starter and leaver processes implemented by smaller and larger SME employers. Compared to smaller employers, larger employers tended to have more complex onboarding and leaver processes that involved several additional steps and communication between HR, information technology (IT) and benefits teams.

During the onboarding process, smaller employers reported that, once a job offer is accepted, the employer requests the new employees P45, ID, right to work documentation and personal information (for example, date of birth, full name, address). Once this is received, the finance team uploads this information into their payroll software.

The starter process implemented by larger SME employers is typically more complex. Firstly, following an accepted job offer, the recruitment team sends confirmation to HR and IT departments, sharing the individual’s details. The HR department then requests the employee’s new starter documentation and personal information, which they in turn pass on to their in-house or external payroll and benefits teams. Finally, the IT department sets up the new employee with accounts to access their work systems.

The leaver process carried out by smaller SME employers was also seen to be more straight forward. Smaller employers reported that the process typically involves the employer receiving the employee’s resignation and conducting an exit interview. In addition, the finance team ensures a P45 is produced and that the employee is removed from the payroll (including PAYE).

For larger employers, after an employee submits their resignation, the HR department provides the employee with leaver forms to complete and check for accuracy (for example, to ensure the employee provided the correct notice). The HR department then informs their in-house or external IT, payroll and benefits teams. Payroll ensures no over or under payments are made and processes the P45, while the benefits team ensure that privileges are rescinded. The employer then conducts an exit interview, and the information technology department recalls the employee’s equipment and closes all their work accounts.

Notably, within the small sample interviewed for this research, there was no discernible impact of larger employers’ more complex systems on the quality of starter and leaver processes and the employee experience.

5.3 Employer’s experiences of using payroll agents

This section reports on the use of payroll agents among SME employers interviewed, and their experiences of outsourcing payment and payroll processes. The term ‘payroll agents’ refers to both payroll agencies and accountants.

5.3.1 Use of payroll agents

Nearly half of the SME employers interviewed used payroll agents and did so primarily to ease the administrative burden on the business or for the finance team. The profile of employers who used agents ranged in terms of their businesses turnover and the number of employees, with the sample being too small to discern a pattern between company size and the use of an agent.

Among those who used payroll agents, there was variation in usage and the extent to which employers outsourced their payment and payroll processes. The responsibilities assigned to payroll agents ranged from agents handling only the employee payment process to managing the full payroll process.

Employers that used payroll agents for processing payments, managed all the processes related to onboarding themselves and were entirely responsible for the accuracy of information and all HMRC and PAYE related processes and interactions. They only outsourced salary payments, which involved supplying the agent specifically with the relevant payment information, in order for the agent to process this and run the salary payments.

Where agents were responsible for the full payroll process, employers reported that their role was only to collate and pass on all the required information. The agent would then process the information, run payroll and be responsible for handling all payroll related activities, such as PAYE, National Insurance, pensions, benefits and HMRC. This means that during the employee starter process, the HR department sends all of the completed new starter forms and documentation to the payroll agency, which is then responsible for conducting all the necessary calculations (for example, National Insurance changes, pension deductions), processing employee payments and resolving any issues.

Lastly, there were employers in the middle of this range, who used agents to carry out payroll and payment processes, while still managing employee onboarding and HMRC interactions. In this scenario, the employer was said to provide the agent with the necessary payroll and payment information. The agent is then responsible for processing this, running payroll and handling PAYE specific actions.

Notably, a couple of employers interviewed had used payroll agents in the past but had stopped outsourcing these processes after experiencing issues.

5.3.2 Experience of using payroll agents

Among those interviewed, SME employers were largely satisfied with the services and perceived benefits of using a payroll agent.

Working with payroll agents was therefore said to result in several positive outcomes. Benefits included reducing the burden on the finance team and the business more widely, by decreasing the number of internal tasks and the time and resource needed to conduct these. Payroll agents were also said to provide cost efficiencies, by streamlining processes, and access to specialist tax and payroll expertise.

“We have a lot more people in situ than we’ve ever done, we have to run a really tight ship.” SME employer, £250,000+ turnover, 50 to 100 employees

However, a few employers using payroll agencies had experienced issues and voiced dissatisfaction with the service. Issues reported included agents frequently making mistakes, such as inputting incorrect information and paying incorrect wages, and the late delivery of payroll and or payslips. Employers generally described interactions with agents as mostly administrative and transactional, with some disliking the perceived lack of rapport. Notably, these experiences and issues were also reported by employers that had used payroll agencies in past.

“It’s supposed to ease the workload of payroll, but they’ve been making mistakes.” SME employer, £250,000+ turnover, 100 to 250 employees

Problematically, employers highlighted that these issues had negative knock-on effects, impacting employees directly as well as the employer and employee relationship.

5.4 SME employer’s experiences of tax code issues

This section reports on employer’s experiences when tax code issues arise during the PAYE process. This includes the perceived pain points and causes of tax code errors, variations in the propensity to experience these and the impact of tax code issues on employers.

5.4.1 Drivers of tax code issues

Employers identified key pain points during the starter and leaver journey, which could result in errors and tax code issues.

During the process of onboarding new starters, employers highlighted 2 key pain points. Firstly, the use of new starter forms that needed to be printed and manually completed, were said to make the onboarding process inefficient and prone to error. This was due to the manual inputting of information and repeated transference of information from one location to another, during which process mistakes could be made.

“All of these manual forms that we have to print out, get the employees to sign, upload the options onto [software package]. It’s time wasting. It just makes the whole process inefficient.” SME employer, £85,000 to £150,000 turnover, 50 to 100 employees

The second pain point highlighted, was employers not receiving accurate and timely employee onboarding information and documentation. Employers reported that when the necessary information is inaccurate or is not received in time for their payment runs, this leads to the production of incorrect or emergency tax codes. As previously noted, these issues can be linked to the former employer not properly completing the leaver process, as described within the case study below.

During the leaver process, employers also identified 2 key pain points. Namely, historic, incorrect payment/deductions that need correcting in the last payroll run and the failure to remove employee from payroll system. If not resolved, these issues can contribute to tax errors occurring when the employee starts at a new company.

One participant also highlighted that the process of initially setting up PAYE and the payroll system can be difficult and confusing.

“It’s been a nightmare to set it up and I’ve been very tempted just to hire our administrators to do it for me because it seems to be less headache.” SME employer, £10,000 to £60,000 turnover, less than 10 employees

Case Study: SME employer’s experience of tax code issues

Hebe is a finance officer at a global oil and gas company with a small UK division. The most difficult challenge she faces when onboarding new starters is incorrect tax codes, as she must then contact HMRC and resolve it before the next payroll cycle. This creates more work and takes time to resolve.

Tax code issues typically occur when the employee provides incorrect information or the company is not given a P45. If the company receives a P45 after onboarding the employee, it will only take a month for Hebe to resolve a tax code issue. However, if the employee has no P45, it will take 2 months.

P45 difficulties are often due to employees joining Hebe’s company after their notice period has ended at their previous employer, but before they have received their final payslip and P45 at the end of the month.

“Salary is important to employees so it reflects badly on me.”

5.4.2 Variations in propensity for errors

Most SME employers had at some point encountered tax issues when onboarding new employees, however some employers were seen to have a higher propensity for errors than others.

Several risk factors were identified that appeared to increase the likelihood of an employer experiencing the pain points and tax errors previously described. Risk factors included high staff turnover, having a temporary workforce and limited payroll resources consisting of small, inexperienced teams.

“We are usually quite short staffed everywhere, so we are prone to these mistakes. We’ve only got one HR manager […] And she also does payroll. Uhm, so we don’t really have time to train staff as much as we would like because we just can’t seem to keep them.” SME employer, £10,000 to £60,000 turnover, less than 10 employees

5.4.3 Impact of errors on SME employers

For SME employers, tax errors primarily resulted in practical impacts due to the additional time burden and potential financial implications involved.

A key impact was the time associated with fixing tax related issues and the increased burden on the business. This was due to the amount of time staff needed to invest in contacting HMRC to resolve the issues and the time spent dealing with employee complaints.

“The time it takes to go backwards and forwards to the employee, and the payroll company, and try and phone HMRC and dig through historic records, time and energy is a huge cost.” SME employer, turnover not provided, 100 to 250 employees

As previously mentioned, these issues were also felt to have a negative impact on employers’ relationships with new starters. This was due to the perception that errors can cause these new relationships to start on the wrong footing, contributing to a loss of trust from the outset and the employer being seen as unprofessional.

Employer were also aware that tax errors could have financial implications, and potentially result in the company receiving fines from HMRC.

Question 6

6.  Improving the starter and leaver journey

Accepted Answer

6.1 SME employee and employer suggestions for HMRC

During the interviews, employers and employees offered suggestions on ways HMRC can better support the employee starter and leaver process and ensure that employee tax is correct first time. Across both groups 3 common themes were identified; digitalisation of the starter / leaver process, greater HMRC proactivity and more HMRC guidance. A summary of each of these suggested improvement areas is provided below.

6.1.1 Digitalisation

The most common area for improvement suggested by employees and employers, was the desire for greater digitalisation during the starter and leaver process. Critically, this was anticipated to facilitate a more efficient starter and leaver process, and reduce the likelihood of errors and tax issues occurring.

“The modern business tries to print as little as possible and tries to store everything digitally… (manual forms) are a stumbling block.” SME employer, £250,000+ turnover, less than 10 employees

Both employees and employers wanted employees to be able to complete and submit the starter checklist online. This suggests there is opportunity to raise awareness that an online checklist is already available, that can be completed digitally without needing to be printed and manually completed. There was also the desire for employees to be able to submit the digital form directly to HMRC, rather than it being sent via the employer.

Employers wanted P45s to be fully digital and accessible to employees online, while employees wanted to be able to view their tax codes via an online account. As mentioned previously, within the sample, there was mixed awareness that this service is already available. There is therefore opportunity for HMRC to increase communication and promotion of Single Customer and Personal Tax Accounts, including the HMRC app, and the benefits of employees registering and opting-in to receiving notifications.

Several employees and employers also voiced their desire for HMRC to provide access to an advanced, online webchat service, whereby an advisor or chatbot operates effectively in helping them to resolve tax code errors, without needing to call HMRC. Promoting the availability of HMRC’s current digital support offer including the tax code checker tool may help to address this need and improve awareness of the wider digital offer.

Notably, however, one participant suggested that a fully digital starter and leaver process may not be suitable for every employer and employee. It is therefore important that the option of manual, paper-based methods continue to be available to ensure the starter and leaver process is accessible for everyone.

“I think it depends upon your workforce. We have quite an old school workforce where not everybody in the business has access to a work e-mail address, even not everybody has a PC. […] So I think for a fairly modern workforce then, yes, that would be great. But yeah, our payroll companies still post out a few pay slips because people don’t want them emailing”. SME employer, £250,000+, 100 to 250 employees

6.1.2 HMRC Proactivity

Alongside greater digitalisation, employees and employers wanted HMRC to be more proactive in its communication and activities to support the starter and leaver process.

Employees suggested that HMRC could more effectively notify them when their P45 had been received and of changes to their tax code, as a result of new employment. Employees thought this could enable them to potentially spot and resolve any issues before the payment of their first salary. They also wanted HMRC to proactively strongly encourage employers to send the P45 in a timely manner to help prevent tax code errors.

Additionally, employers felt that HMRC could play a more proactive role in supporting employers to maintain high standards and avoid tax errors occurring. Suggestions included HMRC making the starter checklist mandatory and identifying opportunities to streamline systems to reduce the need for employees and employers to repeatedly provide information (for example, Student Loan plan). They also felt that HMRC could support employers by ensuring tax records are promptly updated, proactively cross-checking employee’s past and current employment information to ensure tax codes are correct, and quickly fixing tax codes when errors occur.

6.1.3 Improved HMRC information and support

Finally, participants felt there was opportunity for HMRC to improve the quantity and clarity of the information and support it provides, to enhance the ease of the starter and leaver process and employee and employer relations.

Employees welcomed information and guidance from HMRC on the key steps they should expect during the starter and leaver process and timelines involved, for example, the timeframe in which they should receive a P45 from their previous employer and HMRC’s role during the process. They believed that this knowledge would enable them to manage their expectations and empower them to be more proactive during the starter and leaver process.

Similarly, employers also felt it was important for HMRC to educate employees on the starter and leaver process, and employee’s responsibilities. This research has especially highlighted the need to increase awareness amongst employees of the need to proactively check their tax code is correct, and notify HMRC if something doesn’t look correct. To enable employees to uphold this responsibility, it would also be beneficial to educate them on tax codes and provide guidance on how to identify an error.

Additionally, employers would like HMRC to convey to employees the importance of the P45 and HMRC’s role and responsibility for issuing tax codes.

Question 7

7.  Access to and preferences for receiving tax information

Accepted Answer

7.1 Employee access to and preferences for receiving tax information

During the interviews participants were asked where they typically go if they require tax related information and how they would want to hear about relevant information on the starter and leaver process from HMRC in the future. This section summarises the key findings from this discussion.

7.1.1 Current sources of tax information employees use

Employees saw the HMRC website as the primary source of tax information, but they had mixed views regarding how helpful it is.

Some participants described HMRC web pages as helpful, clear and accessible and appreciated that they provide substantial information within one location. However, others felt that the HMRC website is not user friendly as they find it difficult to navigate and locate the information they needed. Some also reported that the language can be unclear and hard to understand. These participants were likely to resort to phoning an HMRC advisor if they were unable to find the relevant information and go straight to this option in the future.

“With HMRC, if you go to their actual website, you have to go through quite a lot of subheadings to get to the right page you want.“ SME employee, 31 years old, employed full time, has 2 or more jobs

Notably, those who were aware of HMRC’s online chat function and had tried using it, did not find the current version to be particularly helpful. Many were not aware of this service and suggested that HMRC should introduce it (see employee preferences for receiving HMRC starter and leaver information set out below).

“I’ve tried to seek information using HMRC online chat function, but it was not great” SME employee, 45 years old, employed full time, has one job

7.1.2 Employee preferences for receiving HMRC starter and leaver information

Most participants voiced their preferences for receiving information on the starter and leaver process from HMRC through digital methods.

Several participants said they would like HMRC to proactively notify them, ideally via email, of any relevant changes or updates regarding PAYE. This includes changes to their tax code and when HMRC has received their P45, in order to improve their knowledge and better enable employees to avoid tax issues. Notably, a few participants had reservations around the legitimacy of emails and would prefer updates to be provided via the government gateway or post.

“I would like an automated email to let me know when a change has happened… You assume your employer doesn’t make a mistake. This way I have more control. ” SME employee, 60 years old, employed full time, has 2 or more jobs

Additionally, some employees also wanted to view their tax codes via an online account. Notably, there were some participants who were aware that this service is already available, and 2 participants had used the HMRC app. However, others were not aware or had not set-up an account. Findings therefore suggest that there is opportunity for HMRC to increase awareness of its Single Customer and Personal Tax Account, the HMRC app, and the benefits of employees registering and opting-in to receiving notifications.

Several participants also wanted HMRC to provide a chat function or chatbots that could help them to resolve tax code errors and avoid calling HMRC. This highlights a lack of awareness of the current digital support offer amongst employees. There was also the suggestion that HMRC could provide a forum to discuss tax situations. However, due to GDPR constraints, an alternative option could be to create a Frequently Asked Question page that is focused on common tax issues and advice for resolving these.

“An online chat if you need to contact HMRC similar to WhatsApp so that you don’t have to call and be on hold for ages.” SME employee, 45 years old, employed full time, has one job

Finally, several participants proposed that information and updates on HMRC’s website should be easier to digest and understand, suggesting that HMRC reduces the quantity and complexity of text and increase the use of visual diagrams and examples.

7.2 Employer access to and preferences for receiving tax information

This section reports on employers’ tax information seeking activities and their preferences for future communications from HMRC.

7.2.1 Current sources of tax information employers use

Among SME employers interviewed, the HMRC website was the primary source for tax related information. This was despite some reporting that they find the website difficult to navigate and identify the information they needed. Additionally, employers reported receiving information updates from HMRC via email, post and the online portal.

Third party websites (for example, specialist HR websites) were also used when seeking tax related information and often these were perceived to be more accessible and better at summarising information compared to the HMRC website. A few also relied on their payroll agency or business networks to stay up to date with the latest tax information.

Some employers highlighted that they were happy to call HMRC for information or advice. While they felt that this might not be the quickest solution, they perceived this to be the best way to ensure that the information they received was accurate.

7.2.2 Employer preferences for receiving HMRC starter and leaver information

Among those interviewed, employers expressed divergent views in terms of how they wanted to be updated by HMRC on changes to PAYE.

Some voiced their preference for email updates (for example, newsletters, bulletins) and wanted these to contain links to further information (for example, video guides).

Others preferred information via post to ensure the information was legitimate. They also believed that letters were more likely to be read compared to emails that can be easily overlooked.

Several participants also wanted HMRC to provide a webchat option, viewing this as a potential channel to receive efficient and accurate information.

“I find the chat function a lot quicker than telephone waiting on hold because you can also do things at the same time rather than having to sort of wait on hold… (I’ve) seen quite a few businesses move to WhatsApp (business accounts) because you could get a quick response time on that as well.” SME employer, £250,000+, 100 to 250 employees

Question 8

8.  Conclusions

Accepted Answer

8.1 Processes followed by employers and employees when they start and leave employment

Successful new starter onboarding was seen to be dependent upon a well-executed leaver process, namely the provision of a timely and accurate P45. As such, the greatest responsibility was upon employers to correctly execute the leaver and starter processes, with employees only being responsible for supplying information and documentation. Greater education is required if employees are to play a more proactive role in ensuring that this information and the tax code they are enrolled onto is correct.

The starter checklist and other onboarding processes were reportedly used by employers and were largely said to work well. However, the use of manual forms, the late provision of P45s and inaccuracies in HMRC records, and changes in employees’ circumstances could lead to issues.

Larger employers tended to have more complex new starter onboarding and leaver processes, with this having no discernible impact on the quality of starter and leaver processes within this small sample.

Within the sample, a range of employers used payroll agents (payroll agencies and accountants) to ease the burden on the business. The service provision employers had in place ranged from full payroll (including management of PAYE, national insurance etc.) to payment processing only.

8.2 Understanding of the correct process and impacts when process goes wrong

Employees felt that employers were responsible for ensuring the correct tax code was applied. Subsequently, employees were dissatisfied when tax errors occurred, and employers directed them to HMRC for a resolution. Experiences with HMRC often left employees frustrated as accessing information and support was seen as difficult and time consuming.

For employees, tax code errors had a financial impact as they needed to wait to receive the correct salary. However, most reported that the main impact was the added stress and frustration induced. As a result, a few employees had become more proactive in managing their tax affairs and implemented strategies to avoid tax code issues.

For employers, the impact of tax errors was primarily practical, resulting in a greater time burden on the business among those who helped employees to resolve the issue with HMRC. They also faced the possibility of fines from HMRC and were concerned that tax code errors could negatively impact the employer and employee relationship.

8.3 Suggestions for improvement

When prompted, employers and employees suggested HMRC could improve the starter and leaver journey through HMRC being more proactive in its communication and activities to support these processes, greater digitalisation and increased guidance and education.

Greater digitalisation was anticipated to make start and leaver processes more efficient and less prone to error. Feedback suggests there is a need to increase awareness that employees can complete the starter checklist online. Additionally, there was the desire for employees to be able to submit the digital directly to HMRC and for HMRC to make P45s fully digital and accessible online. Notably, it will still be necessary to provide the option of manual, paper-based methods to ensure the starter and leaver process is accessible for everyone.

In terms of HMRC being more proactive, employees wanted to receive notifications when their P45 had been received and for HMRC to force employers to send P45s within a necessary timeframe. In addition, employees were keen to receive notifications regarding changes to their tax code more quickly. Employers suggest that making the use of the HMRC starter checklist mandatory and streamlining systems to reduce repetitive data inputs, could help to reduce errors. They also thought HMRC could be more proactive in ensuring tax records are promptly updated, cross-checking employee information to ensure tax codes are correct, and quickly resolving tax codes when errors occur.

Finally, there was thought to be opportunities for HMRC to improve the quantity and clarity of the information and support it provides. Specifically, both employees and employers felt there was a need for greater education and guidance for employees on the starter and leaver process, including steps and timelines involved and the distribution of responsibilities.

8.4 Access to and preferences for receiving information

Both employees and employers saw the HMRC website as the key source of tax related information, although it could be difficult to navigate, digest and find relevant information. Despite long waiting times, employees and employers viewed HMRC’s telephone service as the best route to access accurate information. Third party websites were also used to access information, as well as professional networks more widely by employers.

Employees were mostly in favour of receiving email notification of any relevant changes regarding PAYE. Employers had divergent views on best way to be updated on changes to PAYE, suggesting a mixed approach (combining post and email) would be best placed to ensure updates are received by employers.

Both groups were interested in HMRC providing a more advanced online chat function that enables them to quickly access information and resolve issues, without calling HMRC. As such HMRC could look to promote awareness of the available digital tools and digital support options amongst employers and employees, to potentially improve their starter/leaver experiences.

Question 9

9.  Appendix A – Achieved Employee Sample

Accepted Answer

Further to the sample details provided in Table 2.4.1, the following provides additional details of the employee sample interviewed.

Gender	Number interviewed
Male	5
Female	5

Age	Number interviewed
18-25	2
25-35	2
35-45	2
45-55	1
55-65	1
65+	1

Whether they describe themselves as having a disability	Number interviewed
Yes	4
No	6

Number of paid employment roles	Number interviewed
I have 1 job at the moment	4
I have 2 or more jobs at the moment	4
I am employed as well as self-employed	2

Whether they are receiving pension credit	Number interviewed
Yes	1

Whether they have previously experienced issues with a tax code when starting new employment	Number interviewed
Yes	6
No	4

Ethnicity	Number interviewed
White British	4
White Irish	1
Any other White background	1
Mixed - White & Black Caribbean	0
Mixed - White & Black African	0
Mixed - White & Asian	1
Any other Mixed background	0
Chinese or other Ethnic group – Chinese	0
Chinese or other Ethnic group – any other	0
Black or Black British – Caribbean	0
Black or Black British – African	1
Any other Black background	0
Asian or Asian British – Indian	1
Asian or Asian British – Pakistani	0
Asian or Asian British – Bangladeshi	0
Any other Asian Background	1
Refused	0

Question 10

10.  Appendix B – Achieved Employer Sample

Accepted Answer

Further to the sample details provided in Table 2.4.1, the following provides additional details of the employer sample interviewed.

Gender	Number interviewed
Male	5
Female	5

Age	Number interviewed
18-25	2
25-35	2
35-45	2
45-55	1
55-65	1
65+	1

Whether they describe themselves as having a disability	Number interviewed
Yes	4
No	6

Number of employees	Number interviewed
Less than 10 employees	4
10-49 employees	7
50-99 employees	4
100-250 employees	5

Time business has been operational	Number interviewed
Less than 12 months	1
1-2 years	4
3-4 years	4
More than 5 years	11

Ethnicity	Number interviewed
White British	11
White Irish	0
Any other White background	1
Mixed - White & Black Caribbean	0
Mixed - White & Black African	1
Mixed - White & Asian	1
Any other Mixed background	0
Chinese or other Ethnic group – Chinese	0
Chinese or other Ethnic group – any other	0
Black or Black British – Caribbean	2
Black or Black British – African	0
Any other ethnic background	0
Any other Black background	0
Asian or Asian British – Indian	2
Asian or Asian British – Pakistani	1
Asian or Asian British – Bangladeshi	1
Any other Asian Background	1
Refused	0

Industry sector	Number interviewed
Agriculture, forestry and fishing	0
Mining, quarrying and utilities	0
Manufacturing	1
Construction	0
Motor trades	1
Wholesale	1
Retail	1
Transport and storage (inc. postal)	2
Accommodation and food services	1
Information and communication	1
Finance and insurance	1
Electronic	2
Property	1
Professional, scientific and technical	0
Business administration and support services	1
Public administration and defence	0
Education	1
Energy	1
Health	1
Other	1
Charity	2
Arts, entertainment, recreation and other services	1

How HMRC notifies individuals of tax code changes ↩
The starter checklist is an HMRC form for employees to complete if they start a new job or have been sent to work in the UK, so their new employer can complete their PAYE payroll. ↩

Business turnover for last full financial year	Number interviewed
Up to £10,000	0
£10,000 to less than £60,000	4
£60,000 to less than £85,000	1
£85,000 to less than £150,000	2
£150,000 to less than £250,000	2
£250,000+	11