It is a requirement set by HM Revenue and Customs (HMRC) in the UK, designed to record the tax that an employee has paid during their employment period. 

Importance of a P45 Form

The P45 form serves as an official statement of earnings and tax paid, which is critical for both the employee and the new employer. For employees, it's a document for ensuring they are on the correct tax code with their new employment, as it helps to accurately calculate any tax that may be owed or due for a refund.

Key Components of a P45 Form

As an employer or hiring manager, it's important to be familiar with the P45 form, which employees receive from their previous employer when they leave a job. This form includes details about the amount of tax paid by the employee during the current tax year (6 April to 5 April). The P45 is divided into four parts: Part 1, Part 1A, Part 2, and Part 3. The former employer sends Part 1 to HM Revenue and Customs (HMRC) and gives the other parts to the employee.

The key components of the P45 form include:

• Employer PAYE Reference
• Employee's National Insurance number
• Employee details (title, surname, first name)
• Leaving date
• Student Loan deductions
• Tax code at leaving date
• Last entries on Payroll record/Deductions Working Sheet
• Total pay to date
• Total tax to date
• Employee's private address
• Details for new employer (employer's PAYE reference, works number/payroll number)
• Gender
• Date of birth

How Companies Can Generate the P45 Form Effectively

Utilize your payroll software to produce these forms, unless your software lacks this capability or you're exempt from online filing. Companies like Playroll providing Employer of Record (EOR) may assist in issuing the P45 upon termination to streamline the process.

When an employee joins your organization and presents Parts 2 and 3 of their P45, these sections help you determine the correct tax code to use for their salary. If an employee does not have a P45, perhaps because they are starting their first job or couldn’t obtain it from their previous employer, you’ll need to gather certain information from them. This includes details about any other jobs, benefits received, and any student loans. This information is typically collected via a ‘starter checklist’. This process ensures that the employee's tax code is accurately calculated, ensuring the right amount of tax is deducted from their salary.

Navigating P45 Form Complexities

Use the starter checklist (online) to assign the correct emergency tax code and calculate the appropriate amount of tax for your new employee's first payroll. This checklist proves especially useful for individuals who have recently arrived to work in the UK or are starting a new job without a P45 from their previous employment. 

Essential information on the checklist includes the employee's full address, national insurance number, student loan plan types, and any income received from other jobs or pensions since 6 April. Incorporating this checklist into your payroll software is crucial for maintaining accurate tax records and ensuring compliance with HM Revenue & Customs regulations.

P45 Form vs P60 Form

In UK payroll management, employers need to distinguish between P45 and P60 forms under the PAYE system. The P45 is given to employees when they leave a job, detailing their salary and tax paid to that point. This form is needed to set the correct tax code for employees starting new jobs. The P45, which is split into several parts, includes information with Part 1 sent to HMRC and the other parts given to the employee to provide to their new employer or to keep for personal records.

The P60, issued to employees at the tax year's end (5 April), summarizes salary and tax for the year. It's used for tax returns and financial applications. The P45 tracks tax up to a job's end, while the P60 is an annual summary for ongoing employees. Employers must use this information to comply with HMRC rules and accurately report taxes. 

For new hires without a P45, the 'starter checklist' is used instead of the now-defunct P46 form to gather tax details, preventing issues like emergency tax codes.

P45 Form Examples

For a better understanding of what a P45 form looks like and the specific information it contains, check the government’s site approved versions of form P45.

P45 Form FAQs

Who Qualifies for a P45 Form?

Outgoing employees qualify for a P45 form, provided by their previous employer.

What Happens If I Don't Receive a P45 Form?

By law, employers must give outgoing staff a P45. For new hires who do not have a P45 form, the employer should use a 'starter checklist'. 

What Information Is Included on a P45 Form?

The P45 form includes essential information, such as the amount of tax the employee has paid during the tax year, their national insurance number, and details relevant to any student loan they might have.

Do Employer of Record (EOR) services issue P45 forms in the UK?

Yes, EORs, such as Playroll, issue P45 forms as part of the offboarding process. This allows companies to maintain business continuity while relying on EOR services. Additionally, EORs require P45s for onboarding new hires, incorporating them into the onboarding checklist to ensure compliance for both clients and employees.