Key takeaways
- A P45 is a UK statutory tax form that an employer must provide to every employee when their employment ends, summarising earnings and tax paid in the current tax year up to the leaving date.
- The P45 is split into four parts: Part 1 is sent to HMRC, Part 1A is kept by the employee, and Parts 2 and 3 are given to the next employer for PAYE setup.
- Employers must issue a P45 without unreasonable delay once employment ends, typically on or before the final payslip, and can no longer issue paper P45s from HMRC after April 2019 has been replaced by RTI.
- The new employer uses a P45 to apply the correct tax code and cumulative pay and tax figures, which avoids the employee being placed on emergency tax for their first months.
- Employees who lose or never receive a P45 can still start a new job using HMRC's Starter Checklist, with the new employer applying a tax code based on self-declared employment status.
P45
P45 is an essential document for both employees and employers. It plays a crucial role in the country's tax system. This article will provide a comprehensive overview of what a P45 is, its significance, and how to obtain one. Whether you are an employee or an employer, understanding the P45 is vital for ensuring smooth transitions between jobs and accurate tax records.
A P45 is a form that is issued to an employee when he or she stops working for you. It shows how much the employee has paid in tax and NICs throughout the tax year.
What is a P45?
A P45 is a tax document that employers issue to employees when they leave a job. It includes important information about the employee's income and the taxes they've paid so far in the tax year. It also helps employees to claim tax refunds or apply for benefits more easily.
The form is divided into four parts: Part 1, Part 1A, Part 2, and Part 3. Each part serves a specific purpose and is handled by different parties.
Breakdown of the P45 Form:
- Part 1: Sent to HMRC by the employer.
- Part 1A: Given to the employee for their records.
- Part 2 and Part 3: Given to the employee to pass on to their new employer or to the Job centre Plus if they are not moving directly into a new job.
Key Information Included in a P45
A P45 form includes the following information:
- Employee’s name, address and National Insurance number
- Start and end date of employment
- Payroll number
- Tax code
- Taxable pay
- Taxable benefits
- Tax paid
- Total tax paid
- Tax year
- Taxable pay for the tax year
- Total tax paid for the tax year
- Total tax deducted from the employee’s pay
When is a P45 issued?
A P45 is issued to an employee when they leave their job. It is important that the employer issues the P45 to the employee as soon as possible after they leave their job. The employee should then keep the P45 in a safe place as they may need to refer to it in the future. When starting a new job, the employee will need to provide the P45 to their new employer. This is to ensure that the correct amount of tax is paid to HMRC.
Why P45 Important?
The P45 is important for several reasons:
- Tax purposes: It helps your new employer apply the correct tax code, so you don't overpay or underpay taxes.
- New employment: When you start a new job, your new employer uses the P45 to ensure they deduct the right amount of tax from your salary.
- Claiming benefits: If you are not immediately starting a new job, you may need to provide your P45 to the Jobcentre Plus to claim unemployment benefits.
- Tax refunds: If you have overpaid tax, your P45 can help you claim a refund from HMRC.
What happens if an employee does not receive a P45? If an employee does not receive a P45 from their previous employer, they should contact HMRC. HMRC will then contact the previous employer to request the P45. If the employer is unable to provide the P45, HMRC will issue an emergency tax code to the employee. This code will be used by the new employer to calculate the correct amount of tax to be paid.
Watch below video from HMRC to find out what you need to do if you start a new job and you don't have a P45:
How does a P45 affect a business? A P45 is an important document for businesses in the UK. It is used to ensure that the correct amount of tax is paid by the employee. It also helps to ensure that the business is compliant with HMRC regulations. By understanding the importance of a P45, businesses can ensure that their payroll process is efficient and compliant. This will help to ensure that the business is not subject to any fines or penalties from HMRC. Conclusion A P45 is a document that is issued to an employee when they leave their job. It includes important information such as the employee’s name, address and National Insurance number, the employer’s name and address, the start and end date of employment, the payroll number, the tax code, taxable pay, taxable benefits, tax paid, total tax paid, tax year, taxable pay for the tax year, total tax paid for the tax year and total tax deducted from the employee’s pay. For those setting up or just starting a business in the UK, understanding the importance of a P45 is essential. It is used to ensure that the correct amount of tax is paid by the employee and to ensure that the business is compliant with HMRC regulations.
