What is form P45?

When you leave an employment you will be issued with a form P45. This is an integral part of the mechanism used by HMRC.
Form P45 shows your date of leaving, your tax code, and the gross remuneration and tax paid to you in the tax year to date. 

The P45 details are submitted electronically by your old employer to HMRC to notify them that you have left that employer, and a hardcopy P45 with parts 1A, 2 and 3 are passed to you. You should keep Part 1A for your own records and pass parts 2 & 3 to your new employer at the time you start to receive a salary (in this case pass to Competex, acting as your company’s agent). We use the information to set up a PAYE record for you and to continue taxing you on the same basis as your previous employer, if this is appropriate. We inform HMRC electronically so that they can update your records held with them. HMRC should then review your records and make any necessary adjustments to your tax code.

New Starter Checklist

All directors and employees being paid from your new company will be asked to complete a New Starter Checklist even if they have a P45 to hand. This will be emailed to you by the Payroll Department.

Form P45 & pension

If you receive a pension your P45 should show this and you may only be in possession of Part 1A, but often this is not the case. Please ensure that you inform us if you are in receipt of a pension so that we can establish the correct tax code for your employment with your company.

Form P45 & The Benefits Agency

The Benefits Agency does not have a good record as far as issuing forms P45 are concerned.

If, after a period of unemployment and receipt of benefit, you do receive a P45 from them, it is quite likely that it will not show your original tax code or any remuneration and tax paid to date, which is of course not helpful. It may be for instance that you have already earned remuneration in the tax year which takes you above the basic rate tax band and that you should therefore be paying higher rate tax, but if the Benefits Agency do not show this on your P45 you will begin by underpaying tax and this will have to be sorted out later. Please therefore keep this in mind if you are sending us a P45 from the Benefits Agency and let us know if you think you should be paying higher rate tax.

Form P45 & benefits in kind

It may be that when you leave your old employment, your tax code includes all sorts of deductions that are no longer relevant to your new employment. For instance, it may include a reduction because you had a company car, and/or your previous employer paid for your medical insurance. In these circumstances, you will need to contact the HMRC Employee Helpline and bring them up to date; otherwise you will be paying more tax than you should be.

Form P45 & permanent employment

If after working through your personal service company for some time you decide to take up permanent employment again, please let us know and we can advise you. It is a requirement of Companies House that you remain as an employee of your company, but of course this can be a secondary employment. Upon leaving its employ and starting with a new firm, we have been advised by HMRC not to issue a P45. After commencing a new employment, complete the new starter forms, indicating that you have another employment. After submission to HMRC, please telephone HMRC Employee Helpline and request that your new employment becomes your primary one. HMRC will then switch the tax code, taking into account the previous pay and tax to date figures, to your new employment. Even though you have resumed permanent employment, you will continue as a director of your company until it is dissolved, and HMRC will therefore issue a second tax code that gives no tax allowances (normally a D0 code), to be used in the event of any further salary being paid through your company.

Employer−supported childcare

If you give your employees childcare vouchers, then depending on when the scheme was set up and your level of salary an element of the childcare is free from both tax and National Insurance provided the qualifying conditions are met. Voucher company administration fees may be uneconomic for small companies, but there is nothing to stop you producing vouchers and administering a scheme yourself, provided you meet the qualifying conditions. You may, however, find it much easier for your company to buy the childcare directly from the childcare provider and to give the provision to your employees as a benefit in kind, but this does have added year end complications if it exceeds the tax free threshold. If you wish to pursue this further please contact the payroll department at Competex.

Employment Allowance – reduction of Employers Class 1 NIC by up to £2,000 per tax year

The Employment Allowance is a benefit to Employers which became available from 6 April 2014. If eligible, you can reduce your employer Class 1 NICs by up to £2,000 each tax year. There are exclusions to eligibility and this depends upon who you are working for and the type of work you are doing. If more than 50% of your work is in a non-eligible category, then you may be excluded from the scheme completely. View HMRC’s detailed guidance for insight. Therefore, firstly please take a look at the link below, and ensure you go to detailed guidance at the foot of the page for greater insight. 

For example, you may not be eligible if you are carrying out more than 50% of your work in or for the public sector (although not if you supply IT services). This percentage can be calculated on time spent or turnover gained. 

HMRC advised that the key question to ask is “Who is paying your invoice?” 

  • If over 50% of your work is for the Public Sector and your invoice is being paid directly by them (e.g. NHS, Network Rail, Local Government etc) then you cannot claim Employment Allowance.
  • However, if over 50% of your work is for the Public Sector but your invoice is being paid directly by an agency in the Private Sector then you can claim Employment Allowance.

HMRC then added “Should there be an issue with the work you carried out, who would be pursued?”

  • If the agency were to be held responsible, then you can claim the Employment Allowance.
  • If your limited company were to be held responsible, then you cannot claim the Employment Allowance.

When you start processing payroll through your company, we will ask you to consider the information again and decide whether:

  1. you are not eligible to join
  2. you wish to apply at the end of the tax year to ensure eligibility is confirmed
  3. you wish to join the scheme with immediate effect

You possibly do not know at the beginning of the year what the future holds in terms of work. Therefore, you can wait until the year closes and, if appropriate, a retrospective application can be submitted by Competex at this time. You will receive a direct refund from HMRC. This may be a more appropriate course of action especially if some of your work tends to be of a public nature. When you work under IR35 and you pay an actual salary then you can consider eligibility for the scheme. 

Should you sign up immediately and the nature of your business changes and this means you are no longer eligible for the Employment Allowance, any Class 1 NICs (previously paid back to your company) will have to be repaid to HMRC. Administrative difficulties will be created if the money has to be repaid and therefore it will be necessary for Competex to make a charge in this event. Therefore, it is strongly recommended that if there is any element of doubt over the nature of your work over the next 12 months, you wait until the end of the tax year. 

Processing of salary will be no different from previous years and the details of your salary payment will be submitted to HMRC in the usual way, showing the Employer NI due to be paid. However, if the allowance is due, then rather than Competex paying any Employer NI to HMRC, it will be refunded to your company account on the 19th of the following month. 

Should you have any doubt at all regarding your own personal status, we would advise you to speak to HMRC directly on the Employer Helpline 0300 200 3200.

Auto-enrolment

The Pensions Act 2008 established new duties which mean that employers will need to provide their workers with access to a workplace pension scheme that meets certain minimum standards. Employers need to automatically enrol some of their workers and others can ask to join. The new duties are being introduced gradually and the timescale is dependent on the number of workers an employer has on their payroll. By 2018 all employers must have a scheme in place.

Competex is currently considering the best way to introduce Auto-enrolment to our clients as this new legislation will affect all UK businesses that employ one or more workers/directors. Eligible companies will need to have a pension scheme on offer for employees who meet certain criteria. The staging date for the majority of small businesses is from January 2016 and further information will be provided during 2015 well in advance of the schemes being required.

Find out your own staging date here.

Online Payroll System

Once you have had a first salary payment processed you will be notified by email of your User Login ID and password for the online payroll system. Logging on to this system will enable you to view the personal payroll data we hold for any directors and employees, a summary of salaries paid in a given date range, all payslips, and P60’s where applicable. The system can be accessed by going to online payroll system or by logging in to the Existing Clients section of our website using the password provided to you. 

Amy FowlerWhat is form P45?