You’ll need to present documentation and information to your new manager whenever you take a new job. Perhaps one of the most important papers is your P45.
Although very few people know what the term means, it is virtually widely recognized. Keep reading to learn what is a P45, what it entails, and why it’s so important.
What is P45?
P45 is the referencing code for a tax form called “Details of employee leaving work” that a company in the United Kingdom delivers to an individual after they leave their job. The pay-as-you-earn (PAYE) system includes the P45.
Income tax and National Insurance Contributions (NIC) are deducted from an employee’s wage and paid to Her Majesty’s Revenue and Customs (HMRC) on their account under the PAYE system.
4 different parts in the form
There are 4 different parts present in the form
- Part 1: HM Revenue and Customs receives this from your former employer (HMRC)
- Part 1A: It’s something you should save for your records.
- Part 2 and 3: If you are unemployed, present these to your future employer or Jobcentre Plus.
Your previous employer is responsible for issuing your P45; however, there is no legislative need to do it within a certain amount of time. Rather, companies are required to give it to you on your last day of work or “within a reasonable time” if that is not practicable (for instance, consider your leaving date to calculate the period of annual leave).
The Importance of P45
You should be aware that if you don’t have your P45, your new company will be unable to allocate you the correct tax code. You may wind up paying even more tax than necessary. You may also be required to pay an emergency tax.
Although HMRC can pay you a reimbursement, getting one isn’t always straightforward. If you need to fill out a tax return, P45s are also helpful. It may also assist you in obtaining benefits. You’ll also need to ensure that you aren’t overtaxed while taking your pension.
Is the P45 form given to all employees, regardless of their situation?
Any cause for an employee’s departure has no bearing on your responsibility to complete a P45. In almost all of the following instances, you must issue P45s
- The employee contract has come to an end.
- Since they are switching companies, an employee gives their notice of termination.
- Dismissal, regardless of the cause
You must give a P45 to each departing employee who has an employment agreement, which includes:
- Permanent Contract
- Temporary Contract
- Full time
- Zero hours
You’re informing HMRC and their new employer about how much tax they paid and how much they made in their previous employment as their old employer. How they worked for you and the cause for their departure is irrelevant in this case.
Validity of the P45 form
Although a P45 is only valid for the tax year it was issued, it does not imply you must trash it immediately. You must maintain it for at least 22 months after the end of the tax year in question.
Nevertheless, you might also want to keep it for a prolonged period because HMRC has the authority to conduct tax credit inquiries up to 20 years after the fact.
Information on the P45 form
A P45 document will include all of your salary and tax information until you leave your work. What you may expect to observe is as follows
- Information about your employer, along with a PAYE reference
- Your personal information, particularly your National Insurance number
- Your income tax code
- When did you quit your job?
- To date, your total compensation in that employment
- The entire amount of tax you’ve paid in that employment so far.
Steps to do if you lose your P45 form
If you lose your P45, you won’t be able to acquire a substitute. Rather, upon beginning new employment, you’ll have to complete a Starter Checklist. It should include most of the necessary information for HMRC to compute your tax code.
There’s a potential you’ll be put on an emergency tax code if there’s not enough available information.
What is the difference between P45 and P46 or P60?
A P45 shows the paid amount of tax from the beginning of the fiscal year, which runs from April 6th to April 5th. Your P45 must include the code number of the tax, total income for the year thus far, and a disintegration of the amount of tax and National Insurance that have been deducted so far in this.
If your P45 is lost, your future employer may issue you with a P46 or a Starter Checklist to assist them in determining the code of your tax. Most employers no longer utilize P46 forms, preferring to use a Starter Checklist.
This checklist is enlisted with several questions about any past employment you might have held and any perks or student loans you may have received.
A P60 provides an overview of the taxes you paid during the year. You will obtain a P60 for every job you have if you have more than one.
Because the tax year ends on April 5th, your employer is obliged to provide you with a P60 if you have been employed on that day. They have until May 31st to furnish you with a duplicate of your P60 that can be issued in paper format or electronic.
Things to be aware of while changing your job
Whenever you begin a new work, you’ll need to do a few minor administrative activities in addition to acquiring your P45. Expect your new boss to ask you for the following on your first day:
- Details of your bank account
- A legitimate form of identification, such as a driver’s license or passport, proof of address, such as a driver’s license, utility bill, or bank statement
- If you don’t know what your National Insurance number is, GOV. The UK can help you figure it out.