The P60 & P45 are important PAYE tax information forms for employees to have. But first, what is PAYE?
Pay As You Earn (PAYE) is HMRC’s system to collect income tax (which helps pay for services like education and healthcare) and National Insurance (which helps pay for some benefits and the State Pension) from employees.
PAYE for employers
Where a person is employed, the employer will deduct income tax from their wages and pay it to HMRC under the PAYE system. A tax code is used by an employer to calculate the amount of tax to deduct from an employee’s pay, and it is normally made up of numbers and letters, for example, 1257L or K396.
PAYE is a universal tax collection system that applies to all employees working within the UK.
The main purpose of PAYE is to ensure that the Government receives the correct tax revenue from employed workers as soon as they start earning. All employers are responsible for overseeing the process however, many call upon the help of a professional accountant or payroll bureau to help.
The UK Government is updating its tax system in a bid to migrate to digital filings.
PAYE for employees
The amount of PAYE you should pay is worked out based on your earnings, as well as any personal allowance you’re entitled to. You should remember the tax collected under PAYE is an estimate and is not necessarily the exact amount you are required to pay.
A personal allowance is the amount you’re allowed to earn each financial year before you get taxed on your income. In 2023/2024, the personal allowance is set at £12,570.
However, if your income is over £100,000 or you owe the HMRC unpaid tax, your personal allowance may be reduced. On the other hand, if you have overpaid tax, you may be granted a higher personal allowance.
For anything you earn over and above your personal allowance, you’ll be charged the relevant tax rate, again, this depends on your income. For the basic rate (currently between £12,571 – £37,700), you’ll be charged 20%; for a higher rate (anything between £37,701 – £150,000), you’ll be charged 40%, and for an additional rate (£150,001+), you’ll pay 45%.
So, for example, if you earn £52,000 per year in the 2023/2024 tax year, you will pay the following:
£0 on the first £12,570
20% on the next £37,700 (totaling £7,540)
40% on the remaining £1,550 (totaling £620)
You can calculate your PAYE, which is always based on your gross income.
P45 and P60 overviewed
A P45 form functions as a snapshot summary of an account that summarizes all pay and associated deductions made throughout a tax year. The P45 is summarized at the time of employment termination.
Your P45 will demonstrate to your new employer that you have paid taxes for the current tax year so they can determine whether or not you have been correctly taxed.
Meanwhile, a P60 form is for continuing employees, and it summarises similar employment and tax information for an individual still in employment as of 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.
How do I know when I should receive which as an employee?
P45s are provided by employers whenever you leave the business
Although your employer should be proactive in providing you with a P45 when you leave the business, some people are unaware of the circumstances in which you should receive a P45 document.
A P45 should not only be provided when you have chosen to move to another company but also if you have retired and, therefore, aren’t moving to another role or if your employment has been terminated. P45 documents aren’t rewarded to you as an employee, they are official documents that you have a right to receive when leaving a company.
If you have lost your P45, then you can simply request a new one from your employer, and they should provide it to you.
P60s are provided by employers yearly
A P60 is an end-of-year certificate, meaning that you’ll receive a physical copy of your P60 at the end of the tax year, which falls in early April. You should be issued your P60 by your current employer or employers.
If you work multiple jobs, you should receive a P60 from each of your employers. In case you don’t receive one, you can also get your P60 information online by creating an HMRC personal tax account.
If you’ve changed jobs during the tax year, you will only receive a P60 at the end of the tax year from your current employer. Your former employer will only issue you with a P45, which tracks your earnings and tax status for the year up until you left their employ.
An overview of P45
For employees
A P45 form is a statement of your pay and deductions for the year up to the date you leave your job. For example, your P45 should list all of your wages and the deductions (taxes) that were taken out each month.
It’s important because it shows your employer how much tax you’ve paid so far that year and proves you were correctly taxed in your previous job.
Your employer will add your leaving and final payment details to the Revenue website when you leave a job, if you retire, or if you are taking a career break. If you are transferring from a different branch within the same company, you will only need a P45 if the branch is treated as a separate operating point — your employer will be able to advise on this.
If you’re a student getting your first job, your new employer will provide you with a starter checklist.
What 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
- The date your employment started and ended
- Details of student loan repayments, if applicable
P45s don’t show National Insurance deductions or pension contributions, so it may be useful for an employee to keep their last payslip in case they need to trace these when they reach retirement.
A P45 is divided into 4 parts:
- Part 1 will be sent to HMRC by your employer (you won’t be given this)
- Part 1A is for you to keep
- Part 2 is for your new employer
- Part 3 is also for your new employer, who will complete and send it to HMRC
For employers
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.
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, 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.
An overview of P60
For employees
A P60 is a tax form filled out by employers and issued to their employees once the tax year ends on 5 April. It shows an individual's gross income (salary before tax) along with the total amount deducted for income tax and national insurance for the previous tax year.
It also contains any adjustments made for statutory items such as maternity pay and student loan repayments, along with the final tax code used.
P60s are also called ‘end-of-year certificates.’ That’s because one P60 covers one tax year. It’s issued once the tax year ends on 5 April, summarising information on income and deductions for the previous tax year.
In many cases, if you’ve been with your employer for the full tax year, the figures on your P60 will be the totals of your payslip. If you have two jobs, you may receive two P60s.
But, if you started your job partway through the tax year, the figures from your previous employment will be included on this form if you gave your new employer a P45.
Your P60 is highly confidential. The form contains not just your personal details but also it contains an annual tax summary of your gross income. For that reason, keep it safe and only share it if you are totally sure that the information will not be shared.
What is on a P60?
The following details
- Your details and employer PAYE reference number
- Employee’s details and National Insurance number
- Annual total pay
- Total National Insurance contributions (NICs) and tax deducted
- Student loan deductions
- Statutory pay received: Shared parental, adoption, paternity or maternity pay
- Final tax code
For employers
A P60 form is for continuing employees, and it summarises similar employment and tax information for an individual still in employment as of 5 April, the end of the tax year. At the tax year end, employees will have a separate P60 for each current job.
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.
Find out how to calculate corporation tax for a small business.
Who needs a P60?
- Your Employees: All your employees should receive a P60 before the May 31st deadline.
- Limited Company Director: Don’t forget yourself! If your business is a limited company and you take a salary as its director, then you need to issue yourself with a P60 form, too.
- Self-Employed and Employed: If you run your self-employed business and are an employee at the same time, you’ll need to make sure you get your P60 form from your employer. And your status as either a sole trader or limited company determines whether or not you need a P60 for your self-employed work.
This is a slightly more confusing position. You fill in a Self-assessment tax return to declare your self-employed income and pay the relevant income tax.
You’ll need the P60 summary of your concurrent employed income and tax payments to complete this tax return accurately. HMRC considers your total pay altogether to make sure that you don’t end up paying too much tax.
Learn how to register as self-employed.
Who gives them?
For employees: Both your P45 and P60 will be given to your employer.
For employers: You can get them from your payroll software or the government’s website
What do you need them for?
P45s and P60s are often needed by employees.
The P45 is crucial in helping make sure you work under the correct tax code and, therefore, are taxed at the right rate by your employer, who will deduct income tax and National Insurance contributions from your salary. If you work on the wrong tax code, you could either under or overpay tax.
A P60 is evidence of your income for previous tax years and may be useful if you need to claim a tax refund, prove gross income for a loan or mortgage, apply for tax credits or state benefits, or fill in your tax return if you are registered for self-assessment.
Comparing P45 and P60: Conclusion
Both forms are very important for both employers and employees to have the correct information about. But the most important differences to note are:
- P45s are provided by a former employer and given to a new employer (copy should be kept by the employee), while P60s are provided by the current employer (there may be more than one employment).
- P45s are pay and tax information for the current tax year up to the date of leaving, while P60s are pay and tax information for the whole of the tax year (6 April – 5 April).
- P45s are Information as of the final payroll date, while P60s are Information as of 5 April.
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