What is a P45, and why do you get one when leaving your job?
- TBA
- May 24, 2024
- 4 min read
If you’ve been employed by one than one employer in the UK, you would have received a P45 document after the end of your previous jobs. But what is a P45?
1. What is a P45?
Whenever anyone is employed by a company in the UK, their employer will register them with HMRC in order to pay the relevant taxes and National Insurance contributions.
At the end of employment, the employer must provide a P45 form which shows detailed information about the employee’s income and previous tax paid. This is so that any new employer can easily follow up to declare the correct income tax information to HMRC.
2. What does a P45 look like?
There is no standard format for P45. Each one is slightly different, but all formats will contain important information such as employee name, address, salary, national insurance number, and tax code.
The P45 form is usually divided into four parts—1, 1A, 2, and 3, with the first part being sent to the tax office, 1A being retained by the employee, and parts 2 and 3 being given to the new employer.
In general, the purpose of issuing P45 is to report changes in the employee’s employment status to HMRC to ensure accurate taxation. At the same time, it can also help employees transition into new jobs, or claim benefits during periods of unemployment.
3. When do you receive a P45?
Generally speaking, employees can receive the P45 on the day of resignation, but if for some reason you have not received it, you can request it from your employer. The P45 has always previously been in paper form, but now it can also be generated electronically.
If you are an employer, you have a legal obligation to issue this P45 form to employees who are leaving. Generally, your company’s payroll software can handle this operation for you. You can also use HMRC’s free PAYE tool, which can directly help you calculate taxes and national insurance, and help you issue forms such as P45.
Even if an employee is dismissed by an employer, they still have the responsibility to issue a P45 form to the employee.
4. What if the employer refuses to issue a P45?
If the employer refuses to issue a P45, or there are delays in receiving a P45, the employee needs to communicate with them immediately about the situation.
In some cases, the delay may be due to administrative errors or technical issues and can be resolved through communication. However, if the employer unreasonably refuses to provide the necessary documents, some measures can be taken to resolve the issue, such as reporting the issue to HMRC.
HMRC has protocols for such situations, and they can intervene on your behalf. If you have tried to obtain the document from the employer and it has been refused, it’s best to gather evidence in case you need to prove to HMRC that the employer has violated legal obligations.
5. Validity period of P45
The P45 is valid throughout the tax year in which it is issued.
For example, if you receive a P45 in January 2024, the validity period of this tax form is only until the end of March 2024, before the new tax year begins in April.
In some cases, if an employee resigns in the previous tax year, the P45 can still be used until May 24th. This means that if there is a change in the tax year between resignation and starting a new job, you will need to use an entry checklist instead.
6. Importance of P45
In terms of employment and taxation, the P45 is crucial for both employees and employers. For employees, P45 provides basic information about income, taxation, and employment status in the UK, which is essential for future job opportunities. It can prove to new employers your previous income and tax situation.
At the same time, P45 provides necessary details to HMRC, ensuring that you are taxed correctly in your new job, ensuring you receive accurate wages, and avoiding any potential penalties due to incorrect tax calculations. If you cannot find a job immediately, during unemployment, you can also use the P45 form to apply for jobseeker’s allowance or tax refunds.
For employers, obtaining and reviewing a new employee’s P45 is equally important. By accessing the employee’s P45, employers can verify the employee’s previous work experience and any relevant tax codes, as well as understand how much tax the employee has paid so far. This ensures that they classify employees correctly for wage purposes and avoid potential errors or penalties associated with incorrect tax reliefs.
7. What if there are errors on the P45?
When you receive a P45 document from your employer, it’s best to check the information listed on it. If you find any errors, you should immediately contact your employer’s human resources department and request them to correct the details. If you believe that the tax code provided is incorrect, you should contact HMRC.
If you find a job while updating the document and cannot provide the P45 form to your new employer—don’t worry, this will not affect your employment. However, as mentioned above, you may need to complete an entry checklist form with the assistance of your new employer. Provide this document to your new employer once all your P45 information is updated.
8. Some advice for prospective employers from TB Accountants
Many employers often ask us – can they hire new employees without P45? In short, the answer is yes, you can hire employees without P45.
Sometimes, the new employees you hire may not have a P45 for various reasons, such as being a graduate with no previous employer, waiting for the previous employer to issue a P45, or the new employee having previously only worked part-time.
If your new employee arrives without a P45, you need to have the employee fill out an entry checklist (formerly known as the P46 form) and enter the information into your payroll system. If your payroll software does not generate the necessary checklist, you can find it on the government website.
This way, you can temporarily use a temporary tax code for this employee until HMRC notifies you of the new code, or until the employee provides their P45.