What procedures must be followed when applying the details from a P45 for a new employee? (Part 1)

The following procedures apply when a new employee, or an employee who has already worked for you at some time in the current tax year, presents a form P45 that was issued by the employee's previous employer.

If the employer does not provide a P45 either immediately, or before the first pay run, the employer must follow P46 procedures.

The employee should provide only Parts 2 and 3 of the form. The previous employer should have sent part 1 to that employer's tax office or filed it online. If part 1A, the employee's personal copy, is presented with Parts 2 and 3, it should be returned to the employee with instructions to retain it.

Parts 2 and 3 must be checked carefully, as described below and in the second part of this Payroll FAQ. Then, the bottom half of Part 3 must be completed by the new employer and sent immediately to the new employer's tax office, or filed online. Online filing of P45 Part 3 is mandatory for PAYE schemes with 50 or more employees from April 2009.

Parts 2 and 3 of form P45 have 7 sections, although not all of them may have been completed by the previous employer. Items 1, 3, 4 and 6 should always have been completed. There is no change to items 1 to 7 on the new A4-size P45, introduced from October 2008.

Item 1 should show the previous employer's PAYE reference. The new employer does not record that information. It also appears, however, on Part 3 as it is essential information to enable the HMRC transfer the employee's tax records from the tax office of the previous employer to the tax office of the new employer.

Item 2, the employee's NI number, is validated when the new employer enters it into the payroll system. If the first two characters are invalid and the number is rejected, or if no number is shown on the P45, the employer should completed form CA6855 and send it immediately to the National Insurance Contributions Office in order to start the tracing process. In the absence of a valid NI number, the payroll system should require the employer to enter the employee's gender (M or F) and date of birth.

Item 3 contains the employee's surname, title and first names.

Item 4 contains the date on which the employee's employment with the previous employer ended.

Item 5, if the previous employer has entered a 'Y', requires the employer to set up the new employee so that, from the earliest possible pay run, student loan deductions are taken from the employee's pay when it exceeds the relevant threshold for the pay frequency.

Item 6 shows the final tax code that was used by the previous employer at the date shown at Item 4. In general, this tax code will be used by the employer, applying it on a W1/M1 non-cumulative basis if an 'X' is shown alongside the tax code

If the tax code shown is a suffix code but the suffix is missing, the new employer should not guess what it should be – even if seems to be obviously 'L' – but should add 'T' instead.

However, if an employee starts in the early weeks of a new tax year, special rules apply if the P45 was issued in an earlier tax year:

• If an employee starts on or after 6 April and presents a P45 for a tax year earlier than the previous year, the Emergency code is used, on a W1/M1 basis.
  
  
• If an employee starts up to 24 May and presents a P45 for the previous year, the code shown is used cumulatively, after increasing it (if it is a suffix code) by the amount specified on page 2 of the E12 Helpbook PAYE and NICs rates and limits for [tax year] for the current tax year. Any W1/M1 indicator should be ignored.
  
  
• If an employee starts after 24 May and presents a P45 for the previous year, the Emergency code is used, on a W1/M1 basis.

If the tax code identified by the employer by following these procedures is different from the tax code shown at Item 6, it should be entered at Item 12 on Part 3 of form P45.

The special procedures that must be followed when the previous employer shows information at Item 7 is discussed in Part 2 of this Payroll FAQ.

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