P45 Form: United Kingdom Tax Form, What it is, How it Works

What Is a P45 Form?

P45 is the reference code of a tax form titled "Details of employee leaving work" that an employer gives to an employee upon termination of employment in the United Kingdom. The P45 is part of the pay-as-you-earn (PAYE) system. Under the PAYE system, income tax and National Insurance Contributions (NIC) are withheld from an individual’s salary and paid to Her Majesty's Revenue and Customs (HMRC) on the employee’s behalf.

The P45 form provides a record of the details and amount of tax and insurance paid by the employee from the start of that current tax year until the termination of their employment. A new employer will typically request the P45 when an individual is about to start work.

The P45 form is integral to the system of PAYE and forms the basis of an efficient tax system involving individuals, employers, and HMRC.

How the P45 Form Works

A P45 provides information about the amount of income received and the total tax paid by the employee until their date of termination during a tax year. It also includes information on the individual’s existing tax code. The employer uses the tax code to calculate the amount of tax to be withheld from an employee’s salary. 

Having correct data ensures that the employee will not overpay or underpay their tax. The form also helps determine if the individual is entitled to a tax rebate. (One section of the P45 contains details of any outstanding student loans).

The P45 is a four-part document that must be prepared by the former employer on termination. The former employer submits Part 1 to Her Majesty's Revenue and Customs (HMRC) and gives the other three parts to their ex-employee. The individual will keep Part 1A and give Parts 2 and 3 to their new employer upon reemployment. The new employer then retains Part 2 and uses Part 3 to register the new employee with HMRC.

A person starting their first job will not be in possession of a P45 document. Instead, a form called a Starter Checklist, available from HMRC, will be used by the employer to collect the necessary information. The document allows the registration of the new employee and for them to assess the correct tax code for that employee.

If a person loses a P45 form given to them by their employer, they may also use a Starter Checklist form since replacement forms are not available.

The P45 form is also used as part of the process for claiming a Job Seeker’s Allowance (JSA) in the event that the individual does not immediately find new employment. In addition, a P45 is used to claim tax refunds.

An employer is legally obligated to provide a P45 to an employee upon termination of employment. In instances where the employer fails to do so, the employee should contact HMRC. They will contact the employer to obtain the P45 on the employee’s behalf and may also issue a tax credit certificate to ensure that the employee is not put on the high tax code known as "emergency tax."

An emergency tax is applied when HMRC does not have sufficient information on an individual's income and tax liabilities. Those people who have not gotten a P45 from their employer would be emergency taxed, but the emergency tax will be amended once the P45 is made available.