What is a P45 form?

At the end of an employee’s tenure, their employer provides them with a P45 form, which serves as an official document. The employee’s tax code, gross pay, amount of tax paid, and the employer’s particulars is included in P45 form.

This document has comprehensive information regarding the employee’s earnings and the deductions made for taxes throughout their tenure. It serves as a concise summary of an individual’s income and tax payments for a specific timeframe from the beginning of the current tax year until the date of job.

A standard P45 form is divided into four parts, each serving a different purpose.

The employer sends this section to HM Revenue and Customs (HMRC) to notify them of the employee’s exit from the organization. It contains information like the employee’s national insurance number, tax code, as well as the total pay and tax withheld in the present tax year.

It is meant for the employee’s documentation and contains identical information to Part 1, except for the exclusion of the national insurance number. It is essential for individuals to keep this part secure for future reference, especially when completing tax returns or applying for benefits.

These parts of the document are provided to the employee upon commencing a new job. Part 2 serves as evidence of the individual’s tax code and earnings from their previous employment, which is submitted to the new employer. On the other hand, Part 3 is kept by the employee for their personal record-keeping purposes.

  • Adherence to regulations: Issuing a P45 form to employees who are leaving guarantees compliance with HMRC rules.
  • Precision: It aids in precisely documenting employee income and tax withholdings for HMRC
  • Effortless Changeover: It eases the process of employee’s transitioning between roles by supplying essential tax details to their new employers.
  • Tax Efficiency: It guarantees precise tax calculations, avoiding any excessive or insufficient payment of taxes.
  •  Benefits Claims: It acts as evidence of income for individuals seeking to avail benefits or tax credits.
  • Employment Record: It records an individual’s work history, which has significant value when seeking loans or mortgages.

Any employee who leaves their job for any reason, whether voluntarily or involuntarily, is entitled to receive a P45 form from their employer. This includes resignations, retirements, redundancies, or dismissals.

A P45 is issued by an employer at the end of employment. For example, if a member of staff puts in their notice or is dismissed, a P45 form needs to be issued by the employer to meet the HMRC requirement. P45 can also be issued by the employer other reasons such as retirement of the employee.

In case you are using a software for your payroll, you can issue using that payroll software. In case your payroll is done by your accountant or payroll provider, you can request them to issue P45.

In case you are not using both of these above-mentioned options, you can use HMRC’s free only PAYE tools to create P45 for your employee.

A P45 is valid during the tax year it was issued in. If your new employee has a P45 for the previous tax year, you’ll need to ask them to complete the New Starter Checklist instead.

If you are looking for an accountant to help you with your queries related to your business accounts, Call at 020 35765107 or send a message to book a free consultation.

Note: It must be noted that the information provided in all our blogs are solely for the awareness purposes and are designed with the intention to create an ease for the reader to understand the rules and their importance. However, it should never be considered as an ultimate replication of rules. RezEx Accountants (RezEx Ltd) does not own any responsibility for any unpleasant event that may arise due to misinterpretation of a specific part or whole of the information.

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