P45 and P60 PAYE forms: What employers should know

You’ve recruited your first employee and now you’re faced with all sorts of payroll responsibilities and forms referred to just by a reference number.

There are two PAYE forms in particular that you’ll come across quite often, and you may recognise them from life as an employee. These are the P60 and P45.

The P45 is used when employees change jobs and the P60 is used to summarise the employee’s tax information at the end of the tax year. In this guide we’ll look at both in more detail.

What is a P45?

A P45 is a form that an employer gives to their employee when they leave a job. It’s a way of passing tax and payroll information from the old employer to the new employer and the employee for their own tax records. A paper copy used to be sent to HMRC, but the process now works through RTI (Real Time Information) electronic payroll reporting.

Instead of sending paper through the post the old employer submits the P45 information to HMRC electronically and gives an electronic or paper copy to the departing employee. The employee forwards a copy to the new employer to input the data into their payroll system and notify HMRC electronically.

What information is on a P45?

• Employee identification
• Taxable earnings so far this tax year and any tax paid
• Tax code
• The old employer’s PAYE (Pay As You Earn) tax references

P45s don’t show National Insurance deductions or pension contributions, so it may be useful for the employee to keep their last payslip, in case they need to trace these when they reach retirement.

With the information from the P45 you can enter your new employee’s information into your payroll software to ensure that tax continues to be deducted from the new employee at the correct rate.

P45 form vs ‘starter checklist’

If your new employee arrives without a P45 you will need the employee to complete a starter checklist (formerly a P46 form) and enter the information into your payroll system. If your payroll software doesn’t generate the necessary checklist then you can find the starter checklist on the Government’s website. This allows you to calculate temporary tax codes that should be used until notified of new codes by HMRC, or from a P45 later submitted by the employee.

When an employee leaves your employ you should provide them with a P45 along with their final payslip. In practice this may not be available until after they have left your employment and their final payroll has been processed.

How to get a P45

If your new employee doesn’t have a P45 they should request one, or a copy, from their former employer. In the meantime you should use the data from the starter checklist from your new employee to work out a temporary tax code.

How long is a P45 valid for?

P45s, like all tax records, should be kept by the employee, the old employer and the new employer for six years from the end of the tax year to which they relate, however HMRC can carry out retrospective checks up to 20 years so it may be worth keeping for longer.

If you receive a P45 form for a prior tax year then you should not use this. Ask the employee to complete a starter checklist instead as they must provide information about the current tax year.

What is a P60?

A P60 form is for continuing employees and it summarises similar employment and tax information for an individual still in employment as at 5 April, the end of the tax year. At the tax year end, employees will have a separate P60 for each current job. So if you have two jobs, you may receive two P60s.

You have a legal obligation to provide a paper or electronic copy to your employees shortly after 5 April each year. It summarises the employee’s taxable pay and tax paid while in your employ together with any previous employment (if you received a P45 from them).

This information is now available on your employees’ personal tax account but many still prefer to use the P60 as it is a good way of proving income for tax credits or mortgage and loan applications.

What information is on a P60?

• Employee identification
• The tax year
• Taxable earnings for the tax year and any tax paid (for the current employment and the total for the year if there was a previous employer in the same tax year)
• National insurance paid in the current employment for the tax year (6 April - 5 April)
• Tax code
• The employer’s PAYE (Pay As You Earn) tax references

P60s don’t show pension contributions, so it can be useful for the employee to keep their last payslip in case they need to trace these at a later date.

You must give a copy of the P60 to each employee to keep for their own tax records and also submit a copy electronically to HMRC through your usual payroll software.

Just as you have a legal obligation to provide every employee with a payslip, you must also give them a P60 by 31 May each year. This can be a paper or electronic version. Both the employer and the employee need to keep the P60 for at least six years.

How to get a P60

Your payroll software will generate a P60 for each employee after you have completed the final payroll period of the tax year. You can give this to your employee as an electronic or paper document. Don’t forget that you will also need a P60 for yourself if you receive a salary from your company.

P45 vs P60 - the difference in a nutshell

Both P45 and P60 are important for proving salary and tax paid and should be retained by the employee and employer.

This article is intended as general information only and does not constitute advice in any way. For any specific questions, you may want to consult a qualified accountant.