Customers using Secondary Tax Codes

Some employees are using a higher tax rate, such as a secondary tax rate (ST code), to help offset tax bills based on other income they get. Law changes from 1 April 2019 mean this is no longer allowed if the income being taxed at the higher tax rate is their only source of PAYE income.

If this situation affected any of your employees you should have received advice from IRD telling you to change tax codes accordingly. IRD have also sent letters to affected employees to let them know their new tax code.

If an employee does not want to have their source deductions taxed at the rate in this letter, they should apply for a tailored tax code. They can do this in myIR.

From October, IRD will begin sending letters to individuals where the tax code they’re using is unsuitable. For example, this may be where they are using the correct secondary tax code, but their secondary income tax spans tax brackets resulting in too much PAYE being deducted.

IRD will recommend they apply for a tailored tax code to calculate a rate that will work for them. Once this tax code has been granted, IRD will notify both them and their employer.