A P45 is an official certificate that your employer will hand over to you after terminating your employment with them. In this document, there are many details that include:
- The year’s tax code
- Gross pay
- Amount of tax paid for the year
- Employer information
What does a P45 form look like?
A P45 has four different parts:
- Part 1 has to be completed by the employer and they must write the name of their ex-employee, salary, tax code, and amount of tax paid up to date. It will also include the employee’s National Insurance number and confirmation of the employer.
- Part 1a is kept by the former employee for his/her records alone.
- Parts 2 and 3 are for the ex-employee’s new employer; alternatively, in case he/she is no longer working he or she would take them their job centre so that they can have access to some benefits when they qualify.
You can find an example of a P45 form here for reference.
After the employer has completed the p45 form – either in electronic format or on paper – giving a copy of this document back to its owner ends the exercise from an employer’s perspective. HMRC also requires a copy via payroll software.
Why is a P45 so important?
Your employer won’t know what tax code you should be assigned without your p45. You must send your last P45 to the new employer so that all details are correct and to avoid potentially being overtaxed. If you do not provide a P45, a new employer will automatically put you on the emergency tax code, which is the required standard.
Furthermore, P45s have many other uses when starting a new job. If you fall into the category of those whose income necessitates them to file returns, you will need it. Moreover, if you become unemployed and want to claim benefits or tax refunds then this document is necessary for this purpose. In the future, your P45 might help ensure that you are not being overcharged on any taxes while withdrawing savings from the pension scheme.
How do I get a P45?
The employer will provide you with a P45 when you finish an assignment.
A P45 is not only required whenever you have decided to change companies, but also if you have retired and therefore never moved to another job or your employment was terminated. P45s are not given as a reward to you as an employee but are in fact statutory documents that one should receive upon leaving a company.
When one has misplaced their P45, it is just a matter of asking for a new one from the employer and they will provide you with a copy.
How long is it valid for?
The P45 corresponds to the tax year in which it is issued. It will only be valid prior to the end of March as the new tax year begins in April. Nevertheless, an employee can sometimes still use a P45 before the 24th of May, so it is always worth sending to or checking with the new employer.
Beginning a new job without a P45
When you start a new role, the P45 document makes sure that your employer knows which tax code to apply to your initial pay. If this document has not been sent to your new employer by the time your pay is due, a new employer will automatically put you on the emergency tax code, which is the required standard.
Any over- or underpayments of tax will ordinarily be rectified through the National Insurance number, but this can be easily avoided by providing the P45 upon joining a new employer. However, these issues may also only be resolved by HMRC at the end of the tax year which means you may have to wait until the close of the fiscal year to get back any extra tax that was deducted from your earnings.
What is a P46?
For those beginning their first jobs, instead of a P45, they use a P46 form. Also for such people who did not take away their p45s after leaving their previous place of work.
In this situation, an employee will have to complete a starter checklist form. That’s where you indicate details about your past employment and find out what tax code should be used on your first payday. Learn more about what is meant by p46 and when it is needed.
How long should an employer keep the P45 forms?
Employers must keep copies of a P45 for six years or more. They may be kept on file for longer as HMRC can request documents for up to 20 years.
When working with Umbrella Companies
An umbrella company acts as an intermediary for temporary contractors by managing their salaries and taxes. When contract workers leave, an HMRC-compliant umbrella agency provides them with a P45. This document shows how much the worker was paid and how much tax was deducted. The P45 is crucial because it helps the new employer or umbrella company ensure the correct tax rate is applied to the contractor.
The umbrella company also handles PAYE (Pay As You Earn), ensuring taxes are deducted correctly from the worker’s earnings. By providing the P45, the worker can move to a new job or contract smoothly, and the new employer or umbrella company can continue processing taxes without issues. This prevents problems like overpaying or underpaying taxes, making the transition seamless.
