As an employer, you are legally required to tell HMRc when an employee leaves or retires so you can deduct and pay the correct tax and National Insurance going forward.
In this guide, we’re going to be explaining everything you need to know about issuing a P45.
What is a P45?
A P45 is a form an employer is legally required to issue to an employee when they leave their current job role. The form should contain details of the employee’s salary and taxes paid to date in the current tax year.
How Do I Issue a P45 Form?
Generally, your payroll software can do thai for you, or you can use the free PAYE tools available from HMRC.
Companies with less than 10 employees can benefit from HMRC’s Basic PAYE tools, so you don’t need to worry about making a hefty investment in new software if you don’t already have it.
Issuing a P45 has multiple parts. Part 1, Part 1A, Part 2 and Part 3.
- Part 1 is sent to HM Revenue and Customs (HMRC).
- Part 1A is kept by the employee for their personal records.
- Part 2 and 3 are given to the employee’s next employer or to Jobcentre Plus if they aren’t working.
As an employer, Part 1 and Part 1A are the most relevant to you. In order to complete these parts, you’ll need the following information:
- Your business’ tax office and PAYE reference numbers
- Your employee’s National Insurance number
- Your employee’s leaving date
- Any student loan deductions
- Your employee’s tax code when they left
- Your employees’ total pay and tax to date
- Your employee’s total pay and tax while working for you
- Your employee’s staff/employee number
Once you have filled out these parts on the form, it is your responsibility to send Part 1 to HMRC. Some payroll software will do this for you.
You must then give the remaining parts to the employee who is leaving and should keep records of their employment in your payroll records for a minimum of 6 years (though it is often handy to keep them longer, as HMRC can conduct retrospective checks for up to 20 years after its issue).
If you replace the employee that has left, you should see Part 2 and 3 of the P45 form as this will help you to know which tax code to use for a new employee and make sure they aren’t overpaying or underpyaing HMRC.
When Should You Issue a P45?
As an employer, you must provide a P45 without any unreasonable delay, however there is no legal time limit. Generally though, employers are expected to provide it on the employee’s final day of employment.
If this isn’t possible, such as if the employee’s leaving date coincides with annual leave, it must be issued without reasonable delay, such as via email if you cannot physically hand them a paper copy.
What is a P45 Used for?
As a P45 is a summary of an ex-employee’s tax and payroll information, there are a few scenarios in which it may be used.
For example, if your employee starts another job, their P45 ensures that they remain on the correct tax code. Without the form, the employee would be put on an emergency tax code when beginning their new job and could end up overpaying tax.
Although this can always be reclaimed back from HMRC at the end of the tax year, it means extra admit for their new employer.
If your ex-employee if between jobs, their P45 can be used to get a tax refund if they meet any of the following conditions:
- If they were dismissed or made redundant part way through a tax year.
- If they were paying tax through Pay As You Earn (PAYE).
- If they are currently unemployed.
The amount they can reclaim depends on the amount they earned since the start of the tax year and how much tax they paid on the earnings, as well as any other income.
For employees retiring, your former employee needs to hand their P45 to their pension providers to make sure they aren’t overpaying on tax on any withdrawals made from their pension pots.
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Expert Help from Ryans
If one of your employees is leaving your company and you are concerned about meeting the legal responsibilities around their departure, get in touch with our team of human resources experts at Ryans Chartered Accountants.We can help you to make the right decision when it comes to employee exits, issuing P45s and all of the procedures that follow. Let’s talk.
Frequently Asked Questions about P45’s
What does your P45 mean?
A P45 is a vital document in the UK that outlines an individual’s tax details when they leave a job. It consists of particulars such as total income and the amount of tax paid during the employment period. In essence, it acts as a record for both employees and future employers, reflecting the taxation history.
Do you need P45 to start a new job?
No, it’s not a requirement. However, having a P45 when starting a new job can help your new employer use the correct tax code. It ensures the smooth transfer of tax information. Without it, your employer might need to use an emergency tax code, which might not be aligned with your actual tax obligations.
How do I get a copy of my P45?
Getting a copy of your P45 might feel complicated, but it’s usually a matter of contacting your previous employer. They are obliged to provide it once you’ve stopped working for them. If difficulties arise, you can also reach out to HM Revenue and Customs (HMRC).
What happens if I don’t give my P45 to new employer?
If you don’t provide a P45 to your new employer, you could end up on an emergency tax code. Though not a catastrophic issue, it could mean that you’ll pay a different amount of tax initially. Later adjustments might be necessary, leading to some administrative complexities.
Is P45 a payslip?
A P45 is not a payslip; it’s distinct. A payslip represents your earnings and deductions for a specific pay period, whereas a P45 is a formal statement summarising your earnings and the tax paid during your entire employment with a particular employer.
What if my employer won’t give me my P45?
Should your employer refuse or neglect to provide your P45, it becomes a more serious matter. Reach out directly and request it firmly. If that fails, you can contact HMRC, and they’ll assist in resolving the issue. Remember, your P45 is a legal entitlement, and the failure to provide it may lead to legal consequences for your employer.