What Is a P45 Form in the UK and Why Does It Matter?
The P45 is a statutory notice that is sent to an employer when an employee leaves their employment. It is required to be sent by the end of the month following the date on which the employee ceases to be employed. Do you get a P45 when you leave a Job? The P45 can be used as evidence of a business relationship between the two parties, and it must include certain information regarding employment.
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What Is a P45 Form
The title of the P45 form is Details of employee leaving work. It’s an integral part of the overall PAYE system. The P45 is designed to ensure that taxpayers continually pay the correct amount of tax to Her Majesty’s Revenue and Customs (HMRC). Smooth communication between employee, employers, and HMRC are crucial to its efficiency.
It means that a new employer can use the information you provide to make sure your ex-employee doesn’t pay too much tax when they start a new job. They don’t have to calculate how much tax to send to HMRC, they can just apply the correct tax code for the current tax year.
A P45 is a form that a worker has to complete after leaving their job. It’s used by employers to show to HMRC that they have paid the correct amount of income tax and national insurance contributions (NICs). The form is split into two sections: one for the employer and one for the employee. The employer section shows the income and NICs that were paid to the worker. The employee section shows the income and NICs that were paid to the worker.
It is common for people to worry about their tax liability and what they are going to receive in their retirement. However, in reality, you don’t even need to contribute to a pension or national insurance because your employer will make these payments for you. This means that you don’t have to be concerned about how much you are contributing, and you can focus on the things that are most important to you, such as making money.
What Information Do I Need to Include on a P45?
A P45 contains all the relevant income and tax information that HMRC and a new employer need to make sure your ex-employee remains on the correct tax code. This includes:
As you can see, it’s information that you have in your payroll records. Nothing unusual or additional. Just basic details, pay, tax, NI contributions, etc.
So how do you use this information? Well, you simply add it to the “Income” section of the P45, which is the same place you put your wages, holiday entitlement, pension contributions, etc.
How Do I Report a P45 to HMRC?
HMRC’s guidance says you should use your payroll software to generate your P45s. If you’re exempt from filing online, or your software can’t do this, then you can download HMRC’s basic PAYE tools.
Ideally, you’ll be using one of the great payroll apps that fully integrate with your FreshBooks account. So all you have to do is put their leaving date on your payroll record, make usual deductions in your next Full Payment Submission (FPS), and give your employee their P45.
Employer P45 Form Summary
Now that you understand what a P45 is, why you need it, and the timing tied to using it, you can easily navigate it when an employee starts a job with you and finishes a job with you. Using this form once should make it crystal clear what a small task it is, and thank goodness for those as a business owner.
The timescale for giving your leaving employees their P45 isn’t specifically determined by HMRC. Rules state.On the day on which the employment ceases or, if that is not practicable, without unreasonable delay.