What checks MUST be made when applying the tax details from a P45 for a new employee?

If the P45 (Part 3) shows 'X' in the 'Week 1 or Month 1' section of item 6, there should be no pay and tax details at item 7. The tax code used for the new employee must be applied on a non-cumulative basis, without any pay and tax details from the previous employer.

Otherwise, the "Total tax to date" figure at item 7 must be checked for accuracy in every case. The Revenue's instructions are explicit: "Do not (use) the 'Total tax to date' figure, shown at item 7 of the P45". Instead, the employer must work out the tax due to date using the tax tables, based on the 'total pay to date', the tax code, and the week/month number.

If there is a discrepancy between the correct tax figure, as calculated, and the figure shown on the P45, the calculated figure must be used in setting up the employee's payroll record. There is one exception to that rule - if the employee has a K code, it is the lower of the calculated figure and the P45 figure that must be applied.

If, as a result of these checks, the new employer has to use the calculated figure rather than the figure at item 7, the calculated figure must be entered at item 13 on Part 3 of the P45. The only exception to that rule is if the P45 details are being submitted electronically. The electronic version of the P45 Part 3 does not have an item 13, so the employer cannot report the figure that is actually being used on the payroll. On receiving the P45 details electronically, the Inland Revenue will identify the discrepancy and the employer will be sent a P6 with correct figures to apply as appropriate.

This check of the tax figure at item 7 is not optional; it must be performed for every P45 that shows a 'Total tax to date' figure. Employers, accountants and bureaux that handle many such P45s can avoid the laborious task of checking every P45 manually by using a simple P45 Checker, such as that provided by Qtac Solutions and available in the tools section of the HRD & Payroll Solutions website.

Other important P45 checks will be discussed in the coming weeks.

Discuss this news item in the PayPerShop Forum

...back to 1 October 2004