What Is a P45?

Not a P45Last week, comedian and prankster, Simon Brodkin, handed Theresa May a piece of paper with “P45” written in large print at the top of the page. But what is a P45 and what is the connection with leaving your post?

The P45 is an official form that exists to solve a problem with the way Pay-As-You-Earn (PAYE) operates. To work correctly, the PAYE tax system needs employers to keep track of how much each employee has earned since the start of the tax year. Employers also need to know how much tax was deducted as well as the employee’s tax code. If an individual has one job for the whole tax year, these items are simple for an employer to keep track of; however, if someone changes job, a way is needed to pass this information from the old employer to the new one. This is the main problem that the P45 solves.

When a job ends, the employer gives the departing employee a P45 which shows various information, including their tax code, the total pay and tax in the relevant tax year. When starting the next job, the P45 is given to the new employer who is able to calculate correctly the tax on the new wages, based on the information found on the form. In some situations, a new worker doesn’t have a P45 and, in these cases, employers follow a different process.

The P45 has been used in this way since 1944, when PAYE was first introduced in the United Kingdom, although the format and content of the form has changed over the years.

Until fairly recently, the P45 had to be on paper, but HMRC now allows it to be issued electronically. This official form is a tangible symbol of the end of someone’s employment; in fact, the act of firing someone is sometimes euphemistically referred to as “giving them their P45”.

HMRC issues a specification for the P45, which details the position of all of the boxes and the size and typeface of all of the text. Payroll software companies, such as ourselves, use this specification to ensure our software can produce a valid P45.

The current P45 is a 3-page form, with its main title in a 14-point font. That size of print is difficult to read across a large auditorium, so it isn’t surprising that Simon Brodkin chose not to use the official form. The huge title on his form was clearly visible when he presented it to the Prime Minister, symbolically terminating her job.

Steven Tucker

By Steven Tucker - Co-founder

Steven is one of the founders of The Payroll Site. He writes about things affecting small businesses, especially those things connected with payroll. He's also a Maths graduate and a Chartered IT Professional and has a few views about technology, maths and the misuse of both.