Employers complete PAYE form P45 for the leaving employee. In HMRC’s ideal world, a new employee presents their P45; the tax code, previous pay and tax and pay are then brought forward from the previous employment. P45 purpose fulfilled! Unfortunately, this Eldorado world and the real world are not aligned. Frequently, an employee does not give a P45; maybe it has not been issued by the previous employer in time for the first pay run. So, employers issue the ‘Starter Checklist’, or at least ask the employee to complete the checklist questions.
Matching Employer, Employee and HMRC Expectations
There are two things employers, employees and HMRC want the first time information is submitted on the employer’s real-time information (RTI) full payment submission (FPS):
- one employee on our payroll system matching one on HMRC’s systems, and
- the correct tax code applied.
Employers must focus on point 1, as they do not want to submit data that may not match to an existing taxpayer on HMRC’s systems and maybe create a duplicate employment.
The RTI Matching Data
Five pieces of employee matching data must be reported on the first FPS:
- National Insurance number (NINO);
- full name;
- address;
- current gender; and
- date of birth.
If a piece is missing, HMRC’s systems may not be able to perform the matching exercise and may create another taxpayer record (one taxpayer, but two on HMRC’s systems). Similarly, if the employer changes matching data in a subsequent FPS, HMRC’s systems may create another record. In April 2023’s Employer Bulletin, HMRC stressed the risks of incorrect data, not least for HMRC’s calculation of the monthly PAYE liability and issue of the tax code. Only the NINO is on the P45.
The Correct Tax Code
Employers, employees and HMRC want the correct tax code applied as soon as possible, something the P45 allows providing this is presented in time to process the first payment. An employee starting without a P45 is given the Starter Checklist to complete or, at least, asked these questions (e.g., ‘this is my first job since leaving school’). The checklist estimates the tax code prior to HMRC confirmation.
Expectation Conclusion?
Employers do not always get RTI matching data and tax code information correct in the first pay run. If both are important, I wonder if HMRC should be looking at processes in other countries. For example, the Republic of Ireland (ROI) also operates a PAYE system for income tax. Revenue Ireland (Revenue. ie.) abolished the P45 from 1 January 2019. Now, as part of real-time reporting (RTR, like RTI), before an employee is paid, employers must register employments. This additional reporting obligation requires employers to send employee details to Revenue.ie. who will, on receipt, send Revenue Payroll Notifications. This matching exercise tells the employer the tax code to operate. ROI said goodbye to the P45, performed the matching exercise and ensured the right tax code was used – so why can’t HMRC?
In Summary
If the P45 is received after the first pay run, this can be used if it is in-date, although not if HMRC has sent a tax code. But it does not provide full matching information. In contrast, the Starter Checklist does provide matching data information. Members of HMRC’s Employment and Payroll Group suggested new starters should be required to complete the checklist. HMRC confirmed they are working to get tax code information to employers quicker. HMRC should look at RTR in the ROI. Coming after RTI in the UK, maybe this enabled Revenue.ie. to learn. The legacy form dustbin already holds forms P9, P14, P30, P35 and soon, P11D. I concede there is an additional reporting obligation on employers; however, let’s give the P45 the P45!.
Practical Tip
Obtain RTI matching data:
- NINO;
- full name;
- address;
- current gender; and
- date of birth.
The checklist is not mandatory, so employers can design their own. New employees manage to provide bank details for payday. Why not include the questions on the same form?