As an employer, it is your legal obligation to inform HMRC when an employee leaves or retires, ensuring that the correct tax and National Insurance contributions are deducted and paid moving forward.
In this guide, we’ll cover all the key information you need to understand about providing a P45.
What Is A P45?
A P45 is a document that an employer is legally obligated to provide to an employee when they leave their job. This form includes important information about the employee’s earnings and the taxes they’ve paid so far during the current tax year.
How Do I Issue a P45 Form?
In most cases, your payroll software can handle issuing a P45 for you, or you can use HMRC’s free PAYE tools to do it. For businesses with fewer than 10 employees, HMRC’s Basic PAYE tools are an ideal solution, so there’s no need to invest in expensive payroll software if you don’t already have it.
The P45 is divided into several sections: Part 1, Part 1A, Part 2, and Part 3.
Part 1Â is sent to HM Revenue and Customs (HMRC).
Part 1AÂ is retained by the employee for their personal records.
Parts 2 and 3 are given to the employee’s next employer or to Jobcentre Plus if they are not working.
As an employer, Part 1 and Part 1AÂ are the most relevant. To complete these sections, you will need the following details:
Your company’s tax office and PAYE reference numbers
The employee’s National Insurance number
The employee’s leaving date
Any applicable student loan deductions
The employee’s tax code upon leaving
The employee’s total pay and tax to date
The employee’s total pay and tax during their time working for you
The employee’s staff/employee number
Once the form is completed, it’s your responsibility to send Part 1 to HMRC. Some payroll software can automate this process for you.
You must then provide the remaining parts to the departing employee and keep a record of their employment details in your payroll system for at least six years (though it’s often useful to keep them longer, as HMRC may conduct retrospective checks up to 20 years after issuing the P45).
If you hire a replacement for the outgoing employee, it’s important to review Parts 2 and 3 of their P45. This will help you determine the correct tax code for the new hire, ensuring they pay the correct amount of tax without underpaying or overpaying HMRC.
When Should You Issue a P45?
As an employer, you are required to provide a P45 promptly, though there isn’t a specific legal time frame. Typically, it’s expected that the P45 is given to the employee on their last working day. If this isn't feasible—such as when the employee is on annual leave at the time of departure—the P45 should still be issued as soon as possible, either electronically, like via email, or by other means if a physical handover isn’t possible.
What is a P45 Used For?
A P45 is a summary of an employee’s tax and payroll details, and it’s useful in several scenarios.
For instance, if an employee moves to a new job, their P45 helps ensure they are placed on the correct tax code. Without this form, they could be assigned an emergency tax code by their new employer, potentially leading to overpaying tax. While any overpaid tax can be reclaimed from HMRC at the end of the tax year, this adds unnecessary paperwork for their new employer.
If an employee is between jobs, the P45 can help them claim a tax refund if they meet certain conditions, such as:
Being dismissed or made redundant partway through the tax year.
Having paid tax through Pay As You Earn (PAYE).
Currently being unemployed.
The refund they can claim depends on how much they’ve earned since the start of the tax year, how much tax they’ve paid, and any other sources of income.
For employees who are retiring, they’ll need to provide their P45 to their pension provider. This ensures they won’t overpay tax on any withdrawals from their pension pots.
Expert Help from Ultra Tax Ltd
If one of your employees is leaving and you’re concerned about fulfilling the legal responsibilities around their departure, contact the team at Ultra Tax Ltd.
Our experts can guide you through the entire process, from issuing P45s to handling all the necessary procedures following an employee’s exit. Let us help you make informed decisions and ensure everything is done correctly.
Get in touch with us today to discuss how we can assist you.
Frequently Asked Questions (FAQs)
1. What is a P45?
A P45Â is a form provided by an employer to an employee when they leave a job. It includes details of the employee's earnings and tax paid up to the point they left.
2. When should I receive my P45?
Employers should issue a P45Â promptly after an employee leaves, typically on their final working day. If not, it should be provided without unnecessary delay.
3. What should I do if I lose my P45?
If you’ve lost your P45, you should contact your previous employer to request a replacement. They are required to keep records for at least six years. Alternatively, HMRC can help provide your tax information.
4. Do I need my P45 to start a new job?
While it’s not essential to start a new job, providing your P45 to your new employer ensures that you’re placed on the correct tax code and avoid overpaying tax.
5. Can I get a tax refund with my P45?
Yes, if you’ve overpaid tax due to leaving a job mid-year or other circumstances, your P45 can be used to claim a tax refund from HMRC.
6. What happens if my employer doesn’t issue a P45?
If your employer fails to provide a P45, they are breaching their legal responsibilities. In this case, you should contact HMRC or seek advice from a professional, like the experts at Ultra Tax Ltd.
7. Is a P45 necessary for retirement?
Yes, if you’re retiring, you’ll need to give your P45 to your pension provider to ensure the correct tax is applied to any pension withdrawals.
8. Can I use my P45 for benefits claims?
Yes, you may need your P45Â when claiming certain benefits, as it provides proof of your income and tax paid.
9. What is the difference between a P45 and a P60?
A P45Â is issued when you leave a job and summarises your pay and tax for the current tax year. A P60Â is issued at the end of the tax year and summarises your total earnings and tax paid over the entire year.
10. How long should I keep my P45?
It’s a good idea to keep your P45 for at least six years, as it’s a valuable document for tax records, benefit claims, and future employment.