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14th May 2024

A full guide to a P45 – How to avoid emergency tax

Whether you have just hired a new member of staff and need their p45, or you are starting the job yourself – this guide will have you understanding what a p45 is, how to get it and why it’s important for all businesses.

What is a P45?

A P45 gives an employer information on taxes, so they can pay employees correctly each month, these include:

  • Your tax code

  • How much taxable income you’ve paid

  • How much money has been deducted in the current tax year

A P45 helps employers understand whether there have been any previous tax mistakes leading to you underpaying or overpaying on tax, meaning the form is beneficial for both employees and employers.

The P45 is typically issued in two parts:

  • The first part: is forwarded to HM Revenue and Customs (HMRC) by your previous employer, while the

  • The second part: is given to the employee for their  records. This division ensures that both HMRC and employee have access to the relevant tax information, facilitating smooth transitions between employment and maintaining compliance with UK tax laws.

Why is a P45 needed?

P45s are important as they help to ensure employees are not put on an emergency tax code and pay the right income tax. P45s may also be useful for employees wanting to withdraw money from pensions and make sure they are not being over taxed.

A P45 is only valid for the tax year it’s provided for, however you can still keep them as HMRC has the right to carry out tax investigations 20 years after the tax year they’re inquiring about. Get in touch with a payroll expert online today to find out more information.

How do I receive my employees P45? 

Your employee’s P45 should be given to them on their last working day of employment. Legally, it should be provided to them by the end of the month they leave. If you do not receive a P45 from the previous employer, your new employee will need to complete a new starter form. Find out more on what is needed on a new starter form for employment here.

Avoid getting emergency taxed without p45 

Once your employee has completed a new starter checklist, they will then have to be emergency taxed on their first payment. HMRC requests all employees to go on emergency tax as they don’t have enough information about them to work out how much tax should be taken from their pay cheque.

What is an emergency tax code? 

Tax code 1257L is the emergency tax code when you do not receive a P45. It’s used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car). 1257L is an emergency tax code only if followed by ‘W1’, ‘M1’ or ‘X’. Emergency codes can be used if a new employee does not have a P45.

How long is a P45 valid for?

A P45 is only valid throughout the tax year in which it was provided, a P45 should be kept on record for at least 22 months after the end of the relevant tax year. However, some employees may wish to retain it for longer, as HMRC has the right to carry out tax investigations up to 20 years after the point.

What if your P45 contains incorrect information? 

It’s always a good idea to check the information is correct on all employees’ P45 when you receive it. Ask the HR department to review and change the details that are wrong. If your employee believes their tax code they’ve been given is wrong, contact HMRC. Get in touch with PayEscape and we can help you set up a new starter list for HMRC until the P45 is all up to date.

FAQs

Can I use my P45 for multiple jobs?
No, each job requires its own P45. If you start a new job, you will need to provide your new employer with your most recent P45 from your previous job.

What should I do if I lose my P45?
If your employee loses their P45, the first step is to contact their previous employer and request a duplicate copy. If that’s not possible then contact HMRC or a payroll provider for guidance on what to do next.

Can an employee start a new job without a P45?
Yes, an employee can start a new job without a P45. They will need to fill out a starter checklist provided.. This ensures that your new employer has the necessary information to set up your tax record correctly.

Choose PayEscape for your Payroll and HR Services?

Choosing PayEscape for your payroll and HR services can save you time and money. With our expertise and comprehensive solutions, we ensure your payroll and HR processes run smoothly, keeping you compliant with all UK tax laws and regulations. Our user-friendly platform makes managing your payroll and HR tasks simple and efficient, allowing you to focus on what you do best—growing your business. Save time, reduce costs, and ensure accuracy with PayEscape. Get in touch with us today to see how we can help you streamline your payroll and HR processes.

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