A P45 is a document provided to an employee by their employer when they leave a job in the UK. It details the employee’s earnings and the tax they've paid during that tax year, which is then used for future employment or claiming tax refunds.
What is a P45 used for?
A P45 form is a certificate employers provide to their employees at the end of their employment. It includes important details such as:
- The employee’s tax code
- Their gross pay
- The amount of tax they’ve paid for the current tax year
- Your employer details
If the employee is out of work for a while after ending their employment, they can use their P45 to access certain benefits and tax credits and refunds. Otherwise, they’ll use it when they start their new job—their new employer uses the information from the P45 to set their new employee up in their payroll system and make sure the right payroll and income tax deductions are made.
Employers have a legal requirement to provide P45 forms to their employees and should do so when their employment ends; employees shouldn’t have to ask for P45s.
Why is a P45 so important?
One of the most important functions of a P45 is making sure employees pay the right amount of tax. The P45 supplies their employer with the information they need to input the correct tax code, ensuring that their withholdings, tax return information, and national insurance contributions are accurate.
If an employee starts a new job without a P45, HM Revenue and Customs (HMRC) may be forced to place them on an emergency tax code—resulting in them paying a higher tax rate—until their correct rate is determined.
P45 vs. P46
A P46 can be used in place of a P45 for those starting their first job or for employees who didn’t receive a P45 from their previous employer. In either case, the employee can fill out a New Starter Checklist Form with details about their former employer (if applicable), past work, and student loans or anything else that could affect their tax status. Then, their new employer can use the information provided to calculation their tax code before their first payday, rather than using an emergency tax code.
P45 vs. P60
A P60 form is provided to employees at the end of the tax year, summarizing their total earnings and taxes paid over the year. It includes comprehensive tax information to help with year-end tax returns or other financial obligations.
What does a P45 look like?
A P45 has four different parts:
- Part 1: The employer fills in the ex-employee’s details, including their name and address, salary, tax code, and tax paid to date.
- Part 1a: The ex-employee keeps this part for their own records.
Parts 2 and 3: The employee either gives these parts to their new employer or to their Jobcentre Plus to access unemployment benefits.
Where do employers get P45 forms?
Employers can generate P45 forms using their payroll software or PAYE tools provided by HMRC. Modern payroll systems are designed to automatically create P45s when an employee leaves, making it easier to comply with tax regulations and provide accurate details to the employee and HMRC.
When do you give an employee a P45?
A P45 should be provided to an employee on their leaving date, along with their final payslip. The form should include all the relevant details about the employee’s earnings and tax deductions up until their departure. This allows the employee to give the form to their next employer or Jobcentre Plus.
How long do you need to keep P45s as an employer?
As an employer, you need to keep employees’ P45s for a minimum of six years from the end of the tax year they were issued for. This counts both for past employees you issued P45s for, as well as new employees who brought P45s from their old jobs.
How long is a P45 valid?
A P45 is valid until the end of the tax year in which the employee leaves their job. While its primary purpose is for transitioning between jobs or claiming benefits, employers and HMRC may refer to it during tax investigations, which is why it’s so important to keep organized records for the minimum period of six years. You may even want to keep them longer than that—the HMRC can technically request to review business’ payroll and tax records for up to 20 years.
Frequently asked questions about P45s
What else do employees need to do when changing jobs?
When changing jobs, employees need to supply their new employer with a P45, as well as some other important information:
- Their bank details
- A valid form of ID like a driving licence or a passport
- Proof of address
- Their National Insurance number
What do you do if you make a mistake on a P45?
If you make a mistake on a P45, you can use your payroll software or HMRC’s PAYE tools to issue a corrected version. The new P45 should be sent to both the employee and HMRC to update the records and avoid tax discrepancies.
Do umbrella workers get P45s?
Yes, umbrella workers (those employed through umbrella companies) receive a P45 when their contract ends, just like regular employees. The umbrella company acts as the employer, and they are responsible for issuing the P45 to the worker upon the completion of their employment.
Do self-employed workers get P45s?
No, self-employed workers do not receive a P45 because they are responsible for their own tax filings and do not have an employer to issue the form. Instead, self-employed individuals manage their own tax payments and reporting through self-assessment.
Can an employee start a new job without a P45?
Yes, an employee can start a new job without a P45, but the new employer may assign an emergency tax code until the correct information is available. By the end of the tax year, the correct information should ensure the employee has paid the right amount of tax.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.