P45 Form (Employers’ Guide)

Employers play a crucial role in ensuring the PAYE system works effectively, especially when it comes to issuing a P45 when an employee leaves a job, or requesting a P45 when an employee starts a new job, and submitting the relevant starter and leaver information to HM Revenue and Customs (HMRC). Below we set out the rules relating to P45s, from what these are and how they’re issued to obtaining information for new employees without a recent P45.

 

What is P45?

 

When an employee stops working for you, regardless of the reason for them leaving your employment, you must issue that individual with a P45. This could be because they’ve resigned, been made redundant or had their employment terminated for some other reason. In many cases, you may also need to issue a P45 when an employee retires.

The P45 is a certificate containing information as to the employee’s earnings and tax payments over the course of the tax year that’s issued by an employer to an employee when the employee leaves their job. This essentially shows how much tax the departing employee has paid on their salary for the tax year to date and is, amongst other things, an effective way of passing payroll and tax information from the old employer to any new employer.

 

What information is included on P45s?

 

A P45 has 4 separate parts: Part 1, Part 1A, Part 2 and Part 3. Each section provides a record of how much the employee has earned and what tax they’ve paid. Parts 1 and 1A will require you to complete the following information about your business and the employee:

Box 1: your tax office and PAYE reference numbers
Box 2: the employee’s National Insurance number
Box 3: the employee’s title and full name
Box 4: the employee’s leaving date
Box 5: any student loan deductions
Box 6: the employee’s tax code at their leaving date
Box 7: the employees’ total pay and tax to date
Box 8: the employee’s total pay and tax in your employment
Box 9: any staff/employee number
Box 10: the employee’s gender
Box 11: the employee’s date of birth
Box 12: the employee’s address
Box 13: confirmation that the details are correct, with your business name and address.

When an employee stops working for you, you’ll need to submit Part 1 of the P45 directly to HMRC. You’ll then give the remaining 3 parts to the departing employee.

The employee will retain Part 1A for their own records, as they may need that information for future reference, for example, if they need to complete a self-assessment tax return on any untaxed income. Parts 2 and 3 are to be given by the employee to any new employer, detailing the same information contained in boxes 1 to 7 above, with boxes 8 to 18 of Part 3 for the new employer to complete and submit to HMRC about their new starter.

If the employee has not secured alternative employment and will be claiming state benefits, they’ll need to give Parts 2 and 3 of the P45 to Jobcentre Plus. Similarly, if an employee has retired, Parts 2 and 3 will need to be given to any personal pension provider to ensure that they’re put on the correct tax code when making withdrawals from their pension.

 

Do employers have to provide a P45?

 

By law, when an employee stops working for you, you’re required to give them a P45. You’re also legally required to send Part 1 of the P45 to HMRC. A paper copy used to be sent to HMRC, but the process now works through electronic payroll reporting. This means that instead of sending a hard copy through the post, you can submit the P45 information to HMRC electronically, and give a printed copy or an electronic version of form P45 to your employee.

If you fail or refuse to provide an employee with a P45, they can contact HMRC to report this. HMRC will then notify you of your legal obligations. There is no specified time limit on providing a P45, although this must be done without unreasonable delay.

 

How to issue a P45 form

 

You can use your payroll software to issue a P45. If you need more information about issuing a P45 form, you can check your payroll software provider’s website or contact them. If your software cannot issue a P45, you can use HMRC’s Basic PAYE Tools instead. This is free payroll software for businesses with fewer than 10 employees, although you’ll need to be registered with HMRC as an employer and have a login for PAYE Online.

If you’re exempt from filing your payroll online, you can order copies of P45s from HMRC. You may be exempt from online payroll reporting if you’re employing someone providing care or support services at or from your home, or where there are other exceptional circumstances. This could include if you have a disability which prevents you from using a computer or you’re unable to access an internet connection. However, unless you’re one of the very small number of employers who are exempt, you should not request a P45 from HMRC.

 

When do you issue a P45 form?

 

Typically, you would issue an employee with their P45 once they’ve stopped working for you and you no longer have any obligation to pay them. When an employee leaves your employment you should provide them with a P45 along with their final payslip.

In practice, this means that the P45 will not be available until after their last day of employment and their final payroll has been processed. If you’re continuing to pay an employee statutory maternity, paternity or adoption pay until the end of their statutory leave, even if though they’ve stopped working for you, you should agree one of the following:

• to give them a P45 when they stop working for you, then deduct tax on the remaining statutory payments using an emergency tax code
• use their usual tax code for the statutory payments and give them a P45 after you’ve made the final payment, recording the final payment date as their leaving date.

You don’t need to fill in a P45 form if you’re paying a pension to a retiring employee. You’re not required to treat the employee as leaving your employment as they’re still on your payroll.

 

When should an employer request a P45?

 

When a new employee starts working for you, you’ll need to request Parts 2 and 3 of the P45 provided by their previous employer. With the information from the P45 you can input your new starter’s information into your payroll software to ensure that tax continues to be deducted from the new employee at the correct rate.

In the same way that you’re required by law to notify HMRC when an employee leaves your employment, you’re also legally required to tell HMRC when an employee starts working for you. This means you’ll need to check the information contained in your new starters’ P45, and complete boxes 8 to 18 in Part 3 to submit to HMRC. Part 3 of the P45 will require you to provide information about your business and your new employee, including:

Box 8: your tax office and PAYE reference numbers
Box 9: the new employee’s start date
Box 10: any staff/employee number
Box 11: if the employee will not be paid by you between the date their employment began and the next 5 April
Box 12: the employee’s tax code in use, if different to their previous code
Box 13: any different tax figure on your P11 Deductions Working Sheet from Box 7
Box 14: the employee’s job title or job description
Box 15: the employees’ address
Box 16: the employee’s gender
Box 17: the employee’s date of birth
Box 18: confirmation that you’ve completed a P11 Deductions Working Sheet, with your business name and address.

 

What if the new starter doesn’t have a P45?

 

You need to obtain certain information from your new employee so that you can set them up with the correct starter declaration and tax code on your payroll software. If you have a new recruit without a recent P45, you’ll need to ask them to complete HMRC’s ‘new starter checklist’ to be able to gather the right information before their first payday. This checklist, formerly the P46, will allow you to calculate a temporary tax code that should be used until HMRC has sent you a new code, or from any P45 submitted by the employee at a later date.

If your payroll software doesn’t generate the necessary checklist then you can find the starter checklist on the government’s website. The checklist will require the new employee to provide their name, gender, date of birth, address, National Insurance number and employment start date. They will also be asked to select different statements based on when they last worked, whether they’ve been in receipt of state benefits or a pension, and information relating to any student loans. It’s important that they choose the correct statement that applies to their circumstances, otherwise they may pay too much or too little tax under an emergency code.

Once you’ve got your employee’s information you can use an online tool to work out their tax code, and to find out what else to do before you pay your employee for the first time. You’ll not be require to send the completed new starter checklist to HMRC. However, you’ll need to register your new employee with HMRC by including their details on a Full Payment Submission (FPS) the first time that you pay them. You can use the information from the employee’s completed checklist to help fill this in. Your first FPS must include:

• information you’ve collected from the employee
• the tax code and starter declaration that you’ve worked out
• pay and deductions, for example tax, National Insurance and student loan deductions, since they started working for you.

If your employee gives you a P45 or starter checklist after you’ve registered them with HMRC you may need to update your payroll records. You’ll need to use the tax code that HMRC has sent to you if your employee provides you with a P45 or checklist after you’ve first paid them.

 

How long are P45s valid for?

 

A P45 is valid for the tax year in which it was issued. If an employee hasn’t been in employment for more than a year, their old P45 form will no longer be valid for a new employer and they may need to fill out the starter checklist when they start a new job.

If you receive a P45 from a new employee for a prior tax year then you should not use this, but should instead ask them to complete the starter checklist. This is because they will need to provide information about the current tax year.

If your employee gives you more than one P45, you should use the P45 form with the latest date and give the other one back to them. If these have the same leaving date, use the P45 with the highest tax-free allowance, giving the other one back to the employee.