What is a P45 - Understanding What a P45 is and why we Need them

When changing jobs, individuals will receive different correspondence and documents. One of these will be your P45. This important document, however, is often misunderstood. This blog post will explain what a P45 is, its significance, and why you need it when moving from different jobs.

What is a P45?

A P45 is a tax document that is issued when an employee leaves their job. It summarizes an employee's earnings and the tax deducted from their salary during their time with that employer. By law, employers must provide this document when an employee stops working, regardless of the reason for leaving.

The P45 plays a vital role in ensuring that the correct amount of tax is paid on the employee's income. It includes several key pieces of information:

• Tax Code: This shows how much tax should be deducted from your earnings.

• Total Earnings: The total earnings you received up to your leaving date during the tax year.

• Tax Deductions: The total tax your employer deducts during that period.

  
  

The P45 consists of four parts, each serving a different purpose for the employee, the employer, and HM Revenue and Customs (HMRC).

Why is a P45 Important?

You may wonder why a P45 matters in your job transition. Here are several reasons:

Proper Tax Calculation

Having a P45 ensures that your next employer can apply the correct tax code. This is crucial for avoiding overpayment or underpayment of tax. For example, if your earnings fluctuate significantly, having your previous employer's tax details can prevent you from being placed in an incorrect tax bracket.

Claiming Benefits

If you are out of work, a P45 is essential for claiming state benefits or Jobseeker's Allowance. This document proves your employment status and earnings, which are key to determining your eligibility. In 2022, over 2 million people in the UK claimed Jobseeker’s Allowance, making the P45 a vital part of that process.

Record Keeping

For both employers and employees, a P45 is an important record. It helps employees keep track of their earnings and tax contributions. Meanwhile, employers maintain accurate payroll records, which is essential for remaining compliant with tax regulations. According to HMRC data, inaccuracies in payroll can lead to fines of up to £3,000 for businesses annually.

Future Tax Returns

Individuals who need to file tax returns may need to reference their P45s. Keeping records from previous employment, including P45s, helps during tax season. For example, if you switch jobs several times in one tax year, having your P45s organized can save you considerable headaches when it comes to filing.

How to Request a P45

If you are leaving a job and have not received your P45, it’s important to request this document from your employer. Here’s how to do it:

1. Communicate: Ask your employer if you can have a copy at the earliest convenience.

   
   

2. Follow-Up: If your P45 does not arrive in a timely manner, follow up with your employer. Remember, it is your right to receive this.

   
   

3. Check Details: After receiving your P45, review the information carefully. Ensure that your personal details, tax code, total earnings, and tax deductions are accurate to avoid future complications.

   
   

Alternative Documents: P60

Besides the P45, it’s useful to know the other significant document related to employment and tax in the UK: the P60.

P60

A P60 is an annual document that employers provide at the end of each tax year. It summarizes your total pay and the amount of tax deducted for that year. Unlike the P45, which you receive when leaving a job, the P60 is issued every year. If you are still employed by the same employer on the 5th April of any year, you will receive a P60.

Final Thoughts

A P45 is more than just a piece of paper; it is a cornerstone of your employment history. It helps ensure the correct tax payments are made, facilitates claiming benefits, and maintains accurate records. If you are transitioning between jobs, understanding the importance of a P45 can ease the process and help avoid any issues with tax deductions. Always remember to request your P45 when leaving a job and keep it safe for future reference.