Even as a chartered accountant, I struggle to keep up with all the different names HMRC has for its forms.
So if you’re feeling baffled by your P45 form, read on.
I’ll decode the P45 form for you, show you what the numbers mean and explain why it’s really important for your personal taxes.
A P45 is a tax form is issued by HMRC but filled out by your employer. You get one when you leave your job.
The form contains information such as your:
- Personal details
- Leaving date
- Tax code
- Gross salary
- Tax deducted
The figures that appear on your P45 relate to just the current tax year, not the whole time you were in their employment.
A tax year runs from 6th April to 5 April each year.
So, say you worked for your employer from 1 January 2019 to 30 September 2019 your P45 will show your gross earnings and tax for 6 April 2019 to 30 September 2019.
Your employer will have issued you a P60 before you left which would have details of your earnings for 1 January 2019 to 5 April 2019.
I’ve written more about P60s and why they are important for your personal finances in this blog post.
What Does a P45 Tax Form Look Like?
A P45 tax form is made up of four parts, although the one you are given will only have three –
- Part 1 – sent by your employer to HMRC (not given to you)
- Part 1A – for you to keep
- Part 2 – to be passed onto your new employer
- Part 3 – to be completed by your new employer and sent on to HMRC (now also done electronically)
P45 Part 1A
You need to hold onto this part of your P45. It shows important information including how much gross salary you were paid and tax deducted, as well as the tax code used when you left your job.
Hold onto your P45, you may need it in certain circumstances such as:
- If you complete a tax return you’ll need to include details of employment income;
- As proof of earnings if you are applying for a loan or mortgage;
- For your new employer when you start your new job.
P45 Part 2
This section contains information for your new employer so they know what tax code to use (unless they have received notification from HMRC otherwise) and whether they need to make student loan deductions from your pay.
Giving your new employer this information will ensure a smooth transition from one employer to another.
If your new employer is not given this information they will have to make certain assumptions about your tax code which may mean you end up paying too much tax.
I have written more about missing P45s the implications in this post about Lost P45s.
When Do You Get a P45?
You only get a P45 when you stop working for someone whether you have left voluntarily or not.
It lets HMRC know that you are no longer being paid by them and provides you with information on your taxes for your own records and if you move on to work somewhere else.
If you do not receive your P45 when you stop working for your employer, ask for it – you’re entitled to it by law.
If you are retiring your employer will send Part 1 of your P45 to HMRC so they will know the correct tax code to use when you start receiving your pension.
How Long Is Your P45 Valid For?
It is valid for the rest of the tax year (which ends on 5 April each year). That’s because once the year is over, new tax codes will be put in place and your tax calculation starts fresh.
That being said it is worth still holding onto your P45 because it is evidence of your earnings and how much tax you have paid.
Will the Job Centre give me a P45?
Your Benefits Office will issue you a P45 if you were previously claiming Job Seekers Allowance but have now found a job.
Your new Employer will ask for your P45 as contains your personal details, details of your earnings and tax code.
They will need these details so they will deduct the correct amount of tax each time they pay you.
If you have not received your P45 contact your Benefits Office to request it.
If you handle payroll and you have a new member of your team without a P45 then here’s what you can do.
Why You Need Your P45 If You’re Self-Employed
If you have quit your job to start your own business then you’ll know that you are now responsible for handling your own taxes.
That means completing a tax return every year by 31 January.
You’ll need to include details of any employments you had during the tax year you are filling out your tax return for as well as how much tax you paid.
All this information will be on your P45. So make sure you keep hold of it for tax time.
Becoming Employed after Self-Employment
If you are going back into employment then chances are you may not have a P45.
You’ll only have a P45 if you left an employed position during the tax year.
Have a chat with your new employer about your situation but they will probably ask you to fill out a new starter form (formerly known as a P46) which will help them decide which tax code you should be put on.
If you are still unsure about the information contain on your P45 or are concerned that a mistake has been made, then contact HMRC on 0300 200 3300.
Updated 11 October 2019