In last month’s blog, we took a look at an important piece of documentation related to employment called a P60 – which is an end of tax year summary of the income an employee has received and the tax paid. There is another vital piece of paper an employee might need – a P45. ‘Getting your P45’ has become a catchphrase for losing a job but is actually more often created when moving from one job to another.
What is a P45?
A P45 is the document that an employee receives from their employer when they leave a job. Unlike the P60, it is generated at any time of the tax year and shows the tax position at that point of the year. By law, the employer must give the employee a P45 when they leave.
What is it for?
The P45 is created in order that both the HMRC and the new employer knows how much income the person has received and how much tax and national insurance has been paid up to that point in the year.
It also has information about the tax code the employee is on so that when they are added to the new employer’s payroll scheme, they immediately pay the right amount of tax.
The P45 comes in three parts. The employee gives 2 parts to their new employer and they retain one part for their own records. A digital version is issued to HMRC electronically by the old employer which replaces the old paper version that used to have to be sent by post.
What happens if an employee doesn’t have a P45?
A new employee might not have a P45 for a number of reasons including if it is their first job or if the new job is their second job. It is also possible that their old employer hasn’t provided a P45 which although illegal does sometimes happen.
In this instance, adding the employee to the payroll scheme can be done but does mean a few more steps. The employee will need to complete a new starter checklist to provide information on things like student loan payments made, benefits received and whether they have any other jobs.
With that information, the new employer or their payroll provider like us at Pixie Payroll, will calculate the correct tax code so all should be correct by the first pay day.
We work with our clients’ employees’ P45s all the time so if you have any queries about the document or any other aspect of onboarding a new employee, just get in touch.