TTF Tackles the Money Monster Under Your Bed: Tax Concerns While Seeking New Employment Opportunities

"I’ve always considered myself a planner. I’m the type of person who likes to map out every step before taking action—whether it’s booking a holiday, organising finances, or even something as simple as meal prep for the week. So, finding myself in a job that feels stagnant and unfulfilling has been a challenge. It’s not that the job is unbearable, but I know I’m capable of more, and staying here feels like settling.

Recently, I’ve started exploring new opportunities. It’s still early days—mostly browsing job boards, updating my CV, and thinking about what I’d really want in a new role. I’m not one to rush into things, so I want to weigh all my options carefully before making any big moves.

One thing that’s been on my mind is the potential tax implications of changing jobs mid-year. A colleague mentioned that switching jobs at the “wrong” time could lead to unexpected tax bills. That’s the last thing I want—I hate all surprises, particularly financial surprises. So, before I dive deeper into my job search, I need to understand how this might affect my tax situation. Is it something I need to worry about, or is my friend from work mistaken?

I’d love some advice on what to expect and how I can plan ahead to avoid any nasty surprises."

Thank you for reaching out. It’s great to see that you’re planning ahead and considering the financial aspects of changing jobs. Many people overlook this, but understanding the potential tax implications can help you avoid surprises down the line. There are a few considerations that you should keep in mind when thinking about changing jobs mid-year.

Your Tax Code

When you switch jobs, your new employer will need to apply the correct tax code to your salary. If this isn’t done accurately—perhaps because they don’t have your P45 (a document detailing your earnings and tax to date)—you might be placed on an emergency tax code. This could mean you pay too much or too little tax temporarily until HMRC adjusts it. You could be proactive in this case and ask the right department whether there is anything you need to do to ensure this transition is as smooth as possible.

Cumulative Basis of Taxation

The UK tax system operates on a cumulative basis, meaning your tax liability is calculated based on your total income for the tax year (April 6th to April 5th). If you’ve been taxed correctly up to the point of switching jobs, and your new employer updates your tax code promptly, there shouldn’t be major issues.

Final Payslip from Your Current Employer

Your final payslip will include any outstanding payments such as holiday pay, bonuses, or other taxable benefits. These will contribute to your overall income for the year and could push you into a higher tax bracket if you’re close to a threshold. If you have any issues with your final payslip, make sure that you contact your current employer as soon as possible.

Overlap in Payments

If you receive payments from both your old and new employers in the same month (e.g., because of differing payroll schedules), it might appear that you’ve earned more in that month than you actually have. This can temporarily increase your tax deduction, but HMRC usually resolves this when your records are updated.

You may also want to consider the following points.

Tax Rebates or Underpayments

If you overpay tax due to an emergency code, you can claim a rebate from HMRC. Conversely, if you’ve underpaid tax, HMRC will adjust this in your future payslips or request the balance.

Benefits and Deductions

If your current job offers benefits like a company car or private health insurance, your tax liability might change if these benefits aren’t provided by your new employer.

Self-Assessment Requirement

Depending on your income level, benefits, or if you have multiple income sources (e.g., side hustles), you might need to complete a Self Assessment tax return to ensure everything balances correctly.

Your colleague was right to forewarn you of the tax implications of changing jobs but from a tax point of view, it shouldn't be an overly complex process and certainly not something that should deter you from seeking new opportunities that will make you happier in the long run.

Changing jobs mid-year is perfectly fine from a tax perspective as long as the process is managed correctly. To minimise potential complications:

• Provide your P45 to your new employer as soon as possible.

• Check your first payslip at your new job to ensure the tax code is correct.

• Monitor your overall earnings to ensure you’re aware of any higher-rate tax thresholds you might cross.

If you’re proactive, there’s no reason to avoid changing jobs mid-year. It’s always a good idea to consult with a tax advisor to ensure everything is smooth, especially if you anticipate receiving large payments or bonuses during the transition.

If you’d like personalised advice or support managing your tax during this transition, please don’t hesitate to get in touch with The Tax Faculty for a free initial consultation.

Capital Gains Tax Expertise: The Tax Faculty LLP Managing Partner Charles Tateson Named UK Capital Gains Tax Advisor of the Year 2023

The Finance Monthly Taxation Awards recognises the achievements of tax professionals from around the globe.

Winning such an award is no small feat. It is a reflection of hard work, extensive knowledge, and an ability to navigate the intricacies of the UK tax system.

Read more about Charles and the award here.

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