The P45 is a crucial document in UK payroll processing, issued to employees when they leave a job. It contains essential information regarding their tax code, earnings and tax paid during the tax year.
This guide shows how to handle P45s correctly to ensure compliance with HMRC regulations and avoid tax complications for employees.
Understanding the P45
A P45 is issued in four parts:
- Part 1 – Sent directly to HMRC by the previous employer.
- Part 1A – Given to the departing employee for their records.
- Parts 2 and 3 – Provided to the new employer by the employee to ensure correct tax coding.
Applying a P45 Correctly
Verify the P45 Details
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Ensure the employee’s name, National Insurance (NI) number, and tax code match the records on UK Payroll.
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Check the leaving date to ensure it is within this tax year (see below in the 'what shouldn't be applied' section for more information regarding this).
Apply the Tax Code
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Use the tax code provided on the P45 unless the HMRC have sent across tax code with a more recent date, than the date on the P45.
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If the code is incorrect or missing, apply an emergency tax code until HMRC provides an updated one.
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To action this in UK Payroll, navigate to the employee record & to their taxes tab. Enter the tax code in the tax code field here.
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If the P45 is a W1/M1, toggle the W1/M1 toggle on, to reflect the X in the tax code.
Enter Previous Pay and Tax Details
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Ensure the previous pay and tax figures are entered correctly into UK Payroll.
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To action this in UK Payroll, navigate to the employee record & to their taxes tab. Enter the previous tax paid & previous earnings into the relevant fields.
What Shouldn't Be Applied
Old P45's:
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A P45 must only be applied if it is from the current tax year. Do not apply the tax code or previous earnings to an employee's record if the P45 is from a previous tax year.
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If no P45 is available or the P45 isn't useable, please ask the employee to complete a starter checklist to determine their starting tax code.
Applying Incorrect Pay and Tax Figures
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Do not estimate or round up figures from the P45.
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Enter exact values to ensure accurate tax calculations.
Special Considerations
New Employees Without a P45
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If an employee cannot provide a P45, they must complete a HMRC Starter Checklist to establish their correct tax status.
How to Apply the Tax Code in UK Payroll
- The P45 information can be entered into Bob and synced across in enabled in the Settings > Bob area in UK Payroll. To action this manually you can go to the employees UKP record > Taxes tab and enter the relevant information needed
Applying a P45 correctly is essential to ensuring employees are taxed appropriately and that as employers you remain compliant with UK payroll legislation. Please ensure that P45 details are verified and tax codes are applied accurately. Any errors in processing P45s can lead to payroll discrepancies and potential compliance issues.
If you require any further support with the P45 legislation or applying P45 information to UK payroll, please feel free to reach out to our support team, we will be happy to help!