P45

Understanding the p45

P45 is issued by employers when an employee leaves their job. It contains important information about the employee’s earnings and tax contributions during their employment, which is then passed on to the employee’s new employer or used for tax purposes. The form is an essential document for ensuring that the correct amount of tax is deducted from the employee’s future wages.

When you receive P45 form?

When an employee leaves their job in the UK, their employer is responsible for issuing a P45 form. The P45 contains four parts, and each part serves a specific purpose:

Part 1 (to be given to the new employer): This part of the P45 is handed over to the employee’s new employer. The new employer will use this information to ensure that the correct amount of tax is deducted from the employee’s future wages.

Part 1A (to be sent to HM Revenue and Customs – HMRC): The employer sends this part of the HMRC P45 to the tax authorities.

Part 2 (to be kept by the employee): The employee retains this part of the P45 for their own records. It contains essential details about their earnings and tax contributions.

Part 3 (to be kept by the employer): The employer retains this part of the P45 UK for their own records and payroll purposes.

Why is a P45 so important?

It is crucial for employees to keep their P45 safe, as it serves as evidence of their employment and tax status at their previous job. The new employer will use the information on the P45 to calculate the correct amount of tax to deduct from the employee’s salary. This helps to avoid any potential overpayment or underpayment of taxes during the transition between jobs.

If an employee doesn’t receive a P45 when leaving a job, they should contact their previous employer to request one. In case of any discrepancies or issues with the P45, they can also seek guidance from HMRC or a tax advisor.

How long is P45 valid for?

P45 form is valid only for the current tax year in which it was issued. The tax year in the UK runs from April 6th of one year to April 5th of the following year. Therefore, it is valid for the tax year during which the employee left their previous job.

Once the tax year ends (on April 5th), a new tax year begins, and the P45 from the previous year becomes obsolete. If an employee changes jobs during the new tax year, their new employer will need to receive a fresh P45 from the most recent employment.

For example, if an employee leaves their job and receives a P45 on December 1st, 2023, it will be valid for the tax year 2023/2024. If the employee starts a new job after April 5th, 2024, their new employer will require an updated P45 for the tax year 2024/2025.

Employee’s Tax code

In some cases, an employee may not have a P45, especially if it is their first job, or they have misplaced it. In such situations, the new employer will usually ask the employee to fill out a starter checklist or a new HMRC form, such as the P46. The starter checklist helps the employer determine the employee’s tax code and ensure the correct amount of tax is deducted until it is provided.

If an employee has multiple jobs concurrently or changes jobs frequently, they should ensure that each employer receives the correct tax information to avoid any discrepancies in tax deductions and ensure compliance with the tax regulations.

It plays a crucial role in the UK tax system, facilitating the smooth transition of tax information when an employee leaves one job and starts another. It is vital for both employees and employers to understand the importance of this form and to ensure its accurate completion and submission. For any queries or concerns about tax matters, individuals can seek guidance from HMRC or consult with a tax advisor.