PIXIE PAYROLL Blog

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.

One of the important documents for employees that is generated at the end of the financial year in April is the P60. But we know that it’s easy to just file it without being really sure what it’s all about so this month, we’re going to decode your P60.

What is a P60?

P60 is actually just the name of the HMRC document; its full name is the End of Year Certificate. It is a summary of all the tax and NI that’s an employee as paid, as well as any statutory payments that might have been received.

An employee will receive a P60 for every job they have so for example, if someone has two part time jobs, they will receive two P60s and the amounts will need to be added together to get the full picture of all the deductions and payments in the tax year.

If an employee has changed jobs in the tax year, they will only receive one P60 and the amounts from the previous job will be recorded on the P60 in the ‘in previous employment’ boxes.

There are a couple of key dates for P60s each year. The first is 5^th April – all employees on the payroll on this date are due a P60. The second is 31^st May – this is the date by when those P60s should be done. Even if an employee moves to a new employer during April, their old employer will still need to give them their P60.

Why is it so important?

A P60 actually contains quite a lot of information that will be important elsewhere. If an employee needs to claim Universal Credit or apply for or renew tax credits, a P60 will be an important piece of paperwork that will need to be submitted.

If anyone applies for a refund of overpaid tax, a P60 is needed for that process too.

Similarly, if an employee is applying for a mortgage or a loan, a P60 can be used as proof of income although mortgage companies will generally require additional evidence such as payslips and copies of bank statements. 

It also allows the employee to check that their employer holds their details, such as NI number and tax code correctly so they are being deducted the correct amounts and those deductions are being applied to the correct account.

What about the self-employed?

If someone is entirely self-employed and doesn’t receive any income from working for someone else and being on their PAYE system, they won’t receive a P60.

But if someone does have paid employment, however small, they’ll receive a P60 and those amounts will need to be recorded on their self-assessment tax return for that tax year. If the tax return is done online and the NI number is recorded correctly, the employee will find their personal tax account will have been automatically updated with the P60 amounts.

What to do if an employee doesn’t have a P60?

If an employee hasn’t received a P60 by the end of May, they should ask their employer to provide one. But if that doesn’t happen, the same information that would be on the P60 can be found on their personal tax account and the details can be printed off from here if required.

Because we at Pixie Payroll work on high standard payroll software, the P60s for our clients are generated automatically and very soon after the end of the tax year. But if you need any help getting them done for your employees, just get in touch.

Earlier this month, some important pieces of new legislation came into force that have a direct effect on employers and employees so for this blog post, we’re looking at them in a bit more detail.

Employment Rights (Flexible Working) Act 2023

Before this new act came into force, employees could only request to make a change to where and when they work after they had been in their job for six months, and they could only make one request within any 12 month period.

The new act, which came into force from 6^th April this year, allows employees to request flexible working from the very first day of their employment and to make up to two requests in 12 months. The definition of flexible working can cover a number of different scenarios that include asking to move to part time or reduced hours or only working during term time to accommodate child care needs. It also includes flexitime, which is when an employee can vary their working hours each day, often within the parameters of daily core hours and so that the contracted hours for each week or month are met. So for example, an employee can work 9am to 3pm on one day but those missing two hours will need to be made up at another time.

An employee can also request to work compressed hours, where all the contracted hours are worked over a shorter time. For example, 40 hours can be worked over four 10 hour days rather than five 8 hour days. This can be useful for an employee but consideration should always be given to staff welfare when working long days.

Finally, flexible working might also include a request to vary the location where the employee is based. Most typically this will be a request to work entirely or partly at home, but it might also be a request to work out of a different office location.

Previously, employers had 3 months to make a decision on a flexible working request but that has now been reduced to 2 months. Employers could also reject a request without giving a reason but the new legislation means that’s no longer the case; employers have to back up a refusal with a full explanation for their decision.

Obviously the impact of this new legislation will be different for each employer and may be difficult to manage in small businesses with only a few employees. But all employers are treated the same under the new law so solutions will need to be found when and if an employee requests flexible working.

Carer’s Leave Act 2023

This is the second major piece of new legislation to come into force on 6^th April and has been designed to support employees with caring responsibilities.

The Act gives employees the right, from their first day of employment, to request leave so they can care for someone they look after. This would normally be a close family member – spouse or civil partner, child, parent or other dependent. They might need care because of age, disability or illness or injury that is likely to be needed for at least three months.

The leave that can be granted under the Act is unpaid and the maximum amount of leave that can be taken is one week per year. This can be combined with other leave such as annual leave or even compassionate leave, but this will be at the discretion of the employer and may not be available to everyone. And many employees may find any amount of unpaid leave difficult to manage.

Employers cannot deny a request for Carer’s Leave but if it would disrupt the business too much, they can postpone it to another time.

Protection from Redundancy (Pregnancy and Family Leave) Act 2023

This is another law that came into force on 6^th April and it extends the protection from redundancy already afforded to those on maternity leave to those who are pregnant or who have recently returned from shared parental leave, maternity leave or adoption leave. It can give up to 18 months protection from redundancy, calculated from the child’s date of birth.

If you need any more information on these new laws, speak to your HR professional or just get in touch.

The Chancellor has announced his measures for the country’s finances in what was the last Spring Budget before the General Election later this year and here’s our traditional blog post detailing the key features.

National Insurance

It feels like National Insurance is something we’ve talked a lot about in recent years as it has been the preferred mechanism for reducing taxation and that is the case again this time. National Insurance rates for both employees and the self-employed will be reduced by 2% from 6^th April 2024 (the start of the new tax year). This is in addition to the 2% reduction that was announced last year which came into effect from January this year.

However, there was no announcement that the amount an employee can earn before paying tax or national insurance will increase so more people will be paying tax on their earnings.

VAT

At the moment, businesses have to register for and start paying VAT once turnover reaches £85,000 but that will be increased to £90,000 from April.

Child Benefit

In recent years, the High Income Child Benefit Charge was introduced which meant if a parent earned over £50,000, then they would be liable for the charge. This did introduce an element of unfairness into the system because it meant a household of two parents earning £49,000 wouldn’t have to pay the charge but another with one parent earning £50.001 would pay the charge. The Chancellor announced he would review this scheme to address this unfairness but, in the meantime, the threshold for paying the charge would increase to £60,000.

Holiday lets

Something that’s going to be relevant to us here in Cornwall was the announcement that tax breaks on furnished holiday lets is going to be scrapped. Currently, owners of furnished holiday lets can claim tax relief on things they buy for the property including furniture and other fixtures. The Chancellor hopes that in abolishing the relief, more holiday lets will be made available for long term rent in an attempt to ease the housing crisis in tourist areas such as Cornwall.

Duties

The cut of 5p on duty on fuel was due to end this month but that cut has now been extended for another year. Tobacco duty will increase and a new tax on vapes will be introduced in October 2026 following a period of consultation.

The freeze on alcohol duty was due to end in August but that will now continue until February next year.

Household Support Fund

The Household Support Fund, which was introduced in 2021 to help the poorest families cope with the cost of living crisis was due to end in March 2024 and although there was no mention of an extension in the Autumn Statement last year, the Chancellor has now announced that it will be extended for another six months.

More information on the measures announced in this year’s Spring Budget, including some things we haven’t had room to mention in this blog, can be found here. If you have any questions about how the change to National Insurance will affect your employees or payroll, just get in touch.