What Is a P45 Form in the UK and Why Does It Matter?
A P45 is a statutory document provided to an employee when they leave their job. Employers are required to issue the P45 by the end of the month following the employee’s departure.
This document serves as proof of the employment relationship between the employer and the employee and must include specific details about the employment. The P45 can be used as evidence when moving to a new job or dealing with tax matters.
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What Is a P45 Form
The P45 form, titled “Details of Employee Leaving Work,” is an essential part of the PAYE system. It ensures that taxpayers pay the correct amount of tax to Her Majesty’s Revenue and Customs (HMRC) through accurate communication between employees, employers, and HMRC.
A new employer can use the information from a P45 to ensure the ex-employee is taxed correctly when starting a new job by applying the correct tax code for the current tax year, rather than calculating taxes independently.
The P45 is completed when an employee leaves their job and is used by employers to report income tax and national insurance contributions (NICs) paid to HMRC. The form has two sections: one for the employer and one for the employee, detailing the income and NICs paid.
While concerns about tax liabilities and retirement planning are common, your employer often handles contributions to pensions and NICs on your behalf. This allows you to focus on your priorities, like earning income, without worrying about these deductions.
What Information Do I Need to Include on a P45?
A P45 contains essential income and tax details that HMRC and a new employer need to ensure your former employee stays on the correct tax code. This information includes basic details such as pay, tax, and National Insurance contributions, which are already part of your payroll records.
There’s nothing unusual or additional; it’s just the standard information.
To use this data, you simply input it into the “Income” section of the P45, alongside other details like wages, holiday entitlement, and pension contributions.
How Do I Report a P45 to HMRC?
According to HMRC guidelines, it’s recommended to use your payroll software to generate P45 forms. If you’re exempt from online filing or your software doesn’t support this feature, you can utilize HMRC’s basic PAYE tools for manual processing.
Ideally, you should use a payroll application that integrates seamlessly with your FreshBooks account. This integration allows for easy management of payroll records. Simply update the employee’s leaving date, make the usual deductions in your next Full Payment Submission (FPS), and provide the employee with their P45.
Employer P45 Form Summary
Now that you understand what a P45 is, why it’s important, and the timing for its use, managing it when an employee starts or leaves your job should be straightforward. Completing this form once will clarify how simple it is, which is a relief for business owners.
HMRC does not specify an exact timescale for providing the P45 to departing employees. The rules indicate that the P45 should be issued on the day the employment ends or, if that’s not feasible, without unreasonable delay.