As an employer, it’s important that you understand the purpose of a P45, when to issue them and when to ask for them. It’s a legal requirement that you issue them in a timely manner when required and knowing when to get a P45 from an employee can help make their life a lot easier.
If you’re not quite sure what a P45 is or you’re getting it mixed up with a P60, this guide will help you understand the ins and out of the P45 form and what your responsibilities are around it as an employer.
What is a P45?
The P45 form is used to pass tax and payroll information from one employer to the next and keep HMRC in the loop as well. It used to all be done by paper, but now most payroll softwares can deal with certain aspects of the process electronically.
Who needs a P45?
Any employee that is leaving your company should be issued a P45 by you. It doesn’t matter what their reason for leaving is, whether it be retirement, redundancy, dismissal, the end of a contract or they’ve handed in their notice – they will receive a P45 if they are no longer in your employment.
Similarly, the type of employment with you does not affect this requirement. All employees from a zero-hours contract all the way to full time workers will need a P45 if the end their time on your payroll.
What information should a P45 show?
A P45 has several parts to it. As an employer with an employee departing, Part1 and Part 1A will be the most relevant to you. To complete these parts, you’ll need information such as:
- Your business’ tax office and PAYE reference numbers
- The employee’s National Insurance number
- Their leaving date
- Any student loan deductions
- The employee’s tax code when they left
- The employees’ total pay and tax to date
- The employee’s total pay and tax while working for you
- Their staff/employee number
Once the form is filled out, your responsibility is to send Part 1 to HMRC – often your payroll software will do this for you – and then give the remaining parts to the employee who is leaving you. You should also keep a record in your HR or payroll records for at least 6 years, if not longer.
If you replace the employee that’s leaving, you may see Part 2 and Part 3 of a P45 form. They’ll help you with knowing what tax code to use for a new employee and ensure that they’re not overpaying or underpaying HMRC. If an incoming employee doesn’t have a P45 or theirs is out of date, don’t worry! There’s alternate ways to work out their tax code.
When do you issue a P45?
Usually you will issue a P45 with an employee’s last payslip. Often this means that they will not receive the P45 until after their last day of work and after their final pay has processed.
While there is no designated timeframe in which you must issue a P45, it must be done in a reasonable amount of time. If you do not provide one, your former employee can contact HMRC to report it.
How do you issue a P45?
Often your payroll software can do this for you, but if you don’t have your own payroll software consider using the free PAYE tools from HMRC
Companies with fewer than 10 employees can use HMRC’s Basic PAYE tools which is a free payroll software – saving you from making the investment in software. HMRC’s software can help with calculating tax and national insurance in addition to helping you generate forms such as the P45 or a P60.
Once issues, you should hold on to the form for six years from the end of the tax year it is connected to. HMRC can carry out checks up to 20 years later, so it can be helpful to continue holding these documents for longer than the required minimum.
What to do when a new employee gives you their P45?
When a new employee starts, you should ask for Part 2 and Part 3 of the P45 that was issued by their previous employer. Inputting the information from this will ensure that your new hire is getting tax deducted at the correct rate.
You should only use the new hire’s P45 if it was issued in the same tax year in which you have hired them. If a new tax year has started since they left their old employment, then their P45 is no longer valid.
In order to inform HMRC of the new hire, which is a legal requirement, you’ll need to fill in some information on Part 3 of the P45 form and submit it to HMRC. This part of the form may ask for information such as:
- Your tax office and PAYE reference numbers
- The new employee’s start date
- Any staff/employee number
- If the employee will not be paid by you between the date their employment began and the next 5 April
- The employee’s tax code in use, if different to their previous code
- Any different tax figure on your P11 Deductions Working Sheet from Box 7
- The employee’s job title or job description
What if a new employee doesn't have a P45?
If a new employee doesn’t have aP45 or the one they gave you is out of date, you’ll need the employee to complete a starter checklist instead and then enter that information into your payroll system. This was formerly called a P46 form.
If your payroll system doesn’t automatically generate the checklist on its own, then you can find the starter checklist on the Government’s website. By filling out the form, it will help you figure out what temporary tax code should be used until HMRC notifies you of the correct one.
The starter checklist will ask for information such as:
- Employee name, gender, birthday and address
- Employee national insurance number
- Their start date
- When they last worked
- Information on their student loans
How long is a P45 valid for?
A P45 is only valid for the tax year in which it was issued, so if the tax year has changed between an employee terminating their last employment and start employment with you, then you’ll need to use the starter checklist.
Even if a P45 is no longer valid, you shouldn’t throw it out. HMRC can carry out tax investigations up to 20 years retrospectively, so holding onto your records could be worthwhile.
If your new start has more than one P45 for the current tax year, you should use the most recent one as it will have the most up to date information for you to use.
Getting help with your P45s
If you’re struggling to sort out your P45s, here’s a few places you can find guidance and the tools necessary to succeed:
All links are checked and valid at time of publishing, 12 July 2022.
