If you’ve ever had a job then you will have received a P60, and if you’ve ever changed jobs you’ll also have received a P45. Here, Business Advice expert Rob Drury explains the difference between P45 and P60 forms, and why both are important for small businesses.
Every year in the UK, employers have a responsibility to give every employee a P60 on 5 April, as a statement of their income and an account of deductions made during the previous tax year.
The job of the P60 is to summarise the tax and national insurance paid from an employee’s earnings. It acts as proof of payment should the employee ever have a tax query, is required to fill in a tax return, or wants to make certain tax claims, such as for tax credits.
When you break it down, the P60 form covers the basics of:
- Who the employee is – Including their name and address, national insurance number, and employee number
- Who their employer (you) are – Including your business’s name, address and PAYE reference
- How much the employee was paid during the course of the year – Covering both their current employment with you and any others they may have had during the year, as well as any form of pay such as salary, sick pay or bonuses
- How much tax the employee paid during the course of the year – Again, across all the jobs they had
- What national insurance contributions the employee paid during the year – Again, as a total across all forms of employment
- Any student loan deductions made – If the employee has been paying back the government’s student loan from their time studying
And, when we talk about “the year”, we really mean the tax year, which runs from 6 April.
It’s essential for the employee to keep all their P60s, in case they need to prove their tax and NI contributions. I still have my very first P60, from back in 1990 where my pay was a grand total of £1,151.50 (which meant I paid exactly zero tax).
The difference between P45 and P60
I’ve changed jobs a few times since then, and on each occasion my employer was required to give me another tax form – this time the P45.
If you employ people and they are leaving your business, then the P45 is the form that you need to generate. It comes in three parts:
- Part one gets sent by their employer (you) to HMRC
- Part two for the employee
- Part three for the employee’s new employer – This then gets split into two parts: One part for the new employer, and one part which the new employer sends to HMRC
The P45 form itself simply summarises the pay received by the employee during the current tax year, and any tax paid on those earnings.
It also includes your details (company name and address), as well as the date that the employee is leaving your employ.
The “P” in the name of both forms refers to the fact that they cover tax paid as part of the Pay As You Earn (PAYE) scheme, which is where tax is deducted by the employer at the time of payment, and then passed to HMRC.
The good news for employers is that the majority of payroll systems these days will automatically generate these forms, so that you don’t have to. This can make life a lot easier and takes care of your commitments as an employer.
Robert Drury oversees product management at Qudini
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