Guide to P45s for small businesses

A P45 is a document given to employees when they leave a job. It contains information about their earnings and tax paid during the employment period. 

For small businesses, the P45 serves as a record-keeping tool and helps ensure proper tax compliance when employees depart.¹ (external link) You might also need your P45 when filling in a Self Assessment tax return.

Any employee who leaves a job, whether through resignation, redundancy, or dismissal, should receive a P45.² (external link) 

Employers are legally responsible (external link) for issuing P45s on or before the employee’s last day. For small businesses, this means having processes in place to promptly generate these documents when staff members leave. 

The outgoing employee will need their P45 to give to their next employer, who uses it to set up the correct tax code and avoid emergency tax issues. Without a P45, both the employee and their new employer may face HMRC complications.

A P45 should include your business’s: 

• PAYE reference number (unique identifier for tax purposes) 
• Tax Office Reference Number. 

It should also include the employee’s: 

• Full name and address 
• National Insurance number 
• Tax code at the time of leaving 
• Leaving date 
• Total pay received in the current tax year 
• Total tax deducted in the current tax year 
• Details of any student loan deductions.

Unlike large corporations, small businesses don’t have the benefit of a dedicated HR department to handle tasks like these, so it’s important you fully understand the process. 

Small businesses typically process P45s through their payroll software, which can automatically generate the document when you mark an employee as a leaver. 

BASIC PAYE Tools (external link) is HMRC’s free payroll software for businesses with fewer than 10 employees. 

It handles many payroll tasks, including calculating employee tax and NI contributions and sending these details to HMRC. 

Using payroll software, you can simply enter the leaving date, print the generated P45, and give it to the employee on their final day.³ (external link)

When a new starter provides their P45, you must work out their new tax code and anything else you need to do before their first payday. 

You can do this via GOV.UK (external link). 

You’ll need a few personal details, including their date of birth, gender, address, and start date. 

From their P45, you’ll also need their: 

• Full name Leaving date from their previous job 
• Total pay and tax paid to date for the current year 
• Student loan deductions if applicable 
• National Insurance number 
• Existing tax code.⁴ (external link)

If a new employee doesn’t have a P45, or they left their last job before 6 April 2024, they need to complete a ‘starter checklist’ (external link) (previously called a P46).

A P45 is valid for the entirety of the current tax year in which it was issued. The tax year runs from 6 April to 5 April the following year. If an employee starts a new job in the same tax year they received their P45, they can use it with their new employer. If they begin employment in a new tax year (after 5 April), their P45 can become invalid, and they may need to complete a start checklist (external link).⁵  (external link)

After a P45 expires, employers should keep copies for at least three years from the end of the tax year they relate to. HMRC may request these documents during compliance checks.⁶ (external link)