P45 Form: How It Works
When employees in the UK stop working, they are offered a P45 by their employer providing information about the amount of income and total taxes paid while the person was employed.
Whether an employer or an employee, you must be familiar with P45. This article will highlight everything you need to know about the P45 form.
What is a P45 form?
A P45 form is a document your employer gives you when you leave a job in the UK. It summarises your earnings and the tax you’ve paid during the current tax year. It helps your new employer determine the correct tax code for you, ensuring you don’t overpay or underpay taxes.
It is a legal obligation for employers to provide P45 forms on time, and understanding your responsibilities regarding the process of obtaining them can significantly simplify matters.
The form is divided into four parts 1, 1A, 2, and 3.
Part 1: Sent to HM Revenue and Customs (HMRC) by your employer.
Part 1A: Given to you for your records.
Parts 2 and 3: Given to your new employer or Jobcentre Plus if you’re not working.
The purpose of a P45 is to facilitate accurate taxation by notifying HMRC regarding how much tax you’ve paid on your salary so far in the tax year. Additionally, it assists employees in commencing new positions or in the process of claiming benefits should they find themselves unemployed.
Fundamentally, a P45 provides a comprehensive overview of a person's earnings from their prior employment, thereby playing a vital role in both financial documentation and adherence to legal requirements within the UK employment framework.
A P45 does not have an expiration date, meaning that once it is issued by your former employer, you may retain it indefinitely.
What information is included in a P45?
Personal information
Your full name
National Insurance number
Date of birth
Employment details
Employer’s name and address
PAYE (Pay As You Earn) reference number
Your employee number
Earnings and tax information
Total earnings in the current tax year up to the date you left the job
Total tax deducted from those earnings
Your tax code
Leaving date
The date you left your job
What is the importance of a P45?
Accurate taxation
This document guarantees that your new employer can allocate the appropriate tax code to you, thereby avoiding any instances of overpayment or underpayment of taxes.
Evidence of earnings
It offers a comprehensive record of your income and tax contributions, which is vital for maintaining accurate financial records and adhering to legal requirements.
Entitlement claims
Should you wish to apply for benefits or tax refunds, the P45 acts as verification of your employment status and income. This document acts as evidence that individuals have either departed from or altered their employment, which can be essential when seeking benefits or requesting tax refunds.
Seamless employment transition
The P45 form is vital for a smooth transition from one job to another. It assists your new employer in establishing your payroll accurately, making it easier for the new employer to provide the necessary information to HMRC, ensuring you receive accurate pay, and avoiding any potential penalties.
Compliance with tax regulations
The P45 form is a legal requirement for employers to give employees and maintain accurate records. Even when onboarding new employees, employers ought to adhere to legal requirements throughout the hiring process. P45 assists employers in accurately calculating and withholding taxes from their employees' salaries, ensuring tax compliance.
How to obtain a P45?
When you leave a job, your employer is obligated by law to issue you a P45. This document should be provided on your final working day or shortly thereafter.
If you do not receive your P45, it is advisable to directly contact your employer's human resources or payroll department to request it. They will then create the document for you, which will include details such as your tax code and your earnings up to the point of your exit.
Should your employer neglect to furnish you with your P45, you have the option to reach out to HMRC for support.
What happens if I do not have a P45?
In the absence of a P45, your new employer will be required to determine the appropriate amount of tax to be deducted from your salary under the following circumstances:
- • You are starting your first job
- • You are taking on a second job.
- • You are unable to obtain your P45 from your former employer.
It is essential to inform your new employer about any other employment you hold, any benefits you receive, and whether you have a student loan. They will request that you complete a 'starter checklist' or provide the necessary information through an alternative method. This information will enable your employer to establish your correct tax code before your initial payday in the absence of a P45.
To comply with HMRC, Icon Offices will help to file corporate tax, VAT, and also register for VAT and EORI numbers. We also help business owners register their UK limited company with Companies House which automatically registers you for Corporation Tax with HMRC. We also offer ongoing company secretarial support which includes timely submission of documents to HMRC and maintain statutory records. We also provide a registered office address which is required for HMRC correspondence.
For more information, contact us at [email protected].