The P45 is one of those forms that is so common people not only know it’s reference number, it’s the main way people refer to it. It’s actual name — ‘Details of employee leaving work’ — is, to be fair, a bit more of a mouthful than P45. Does that accurately describe what it is though?
What is a P45?
A P45 is, effectively, a statement of earnings and tax paid during that tax year in an employment you have left. The form should be given to you when you leave and contains multiple parts. The main purpose of the P45 is to ensure that your next employer knows how much tax you have paid. This is so they can calculate, and deduct, your tax correctly.
What is on it?
Despite its importance — especially for the recipient — the form does not contain that much information. For most people it will have personal details; name, address, and NI number. Along with their leaving date and details of their earnings, tax paid and tax code when they left their employment.
The form has several parts, all containing the same information, with each part intended for a different recipient. One for the HMRC, one for you, then two further parts for a future employer.
How do you get it?
You should be given a P45 whenever you leave a job. It is the legal responsibility of your former employer to provide it, regardless of the reason you are leaving. If you are not given one promptly, and they don’t provide one when requested, it should be followed up with the HMRC who can remind them of their legal duties; an action that usually leads to a P45 being quickly delivered!
What does it do?
The P45 carries information about the salary you have received and the tax you have paid so that your new employer can deduct the right level of tax. For most people on PAYE, tax is deducted from each salary payment based on the assumption that earnings will be consistent during the year.
This means that you don’t, for example, earn your salary tax-free at the start of the year, then pay basic rate for part of the year, and then move to higher rate. Instead, you will be taxed proportionately throughout the year, getting part of your tax-free allowance, and paying portions at the relevant tax rate, each month.
This means it’s important to pass on. If you don’t, you may be put on an emergency tax code, meaning you get no tax-free allowance. And if you have a significant change in salary, or a period with no earnings during the year, then it’s likely you will not be taxed correctly.
How is it different to the P60?
The P45 is only issued when you leave a job and contains details of payment from that employment. Its main use it to pass on to a new employer.
The P60 is a statement of your earning from an employment for a whole tax year. This is created for your records and needs to be retained for any tax return or query that you may need to deal with.
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