PAYE means pay-as-you-earn and refers to the way in which businesses deduct income tax and National Insurance contributions directly from their employees' pay. There are several forms which a business needs to complete in order to operate PAYE. We take a look at the main three:
The P45 explained
When an employee stops working for a business, the employee needs to be provided with a P45 form. This form is to show how much tax the employee has paid on their salary so far in the tax year. A P45 has four parts: Part 1 is sent to HMRC, part 1A is for the employee's records and parts 2 and 3 are for the employee to give to a future employer or to the Jobcentre Plus.
By law, an employee must be provided with a P45 when they leave a job. Similarly, if a new employee is starting at your company, it is important for them to pass on parts 2 and 3 of their P45, to ensure that they are placed on the correct tax code. Without it, you may have to put them on an emergency tax code.
As an individual, if you are required to fill out a self-assessment tax return, you will need your P45 as you will need to enter details on your total employment income for the year and how much tax you have paid on it (deducted via PAYE).
If you are either starting your first job or taking on a second job, you won’t have a P45 to give to your new employer. In this instance, you may be given a ‘starter checklist’ (which replaced a P46 form). This form is a way for the employer to gather information about any other jobs you have, your national insurance details and other information such as whether you have a student loan.
The P60 explained
If you are employed and are still working at the end of the tax year, you will be issued with a P60 which shows what you have earned and the tax you have paid. P60 forms are useful as they can show whether you have overpaid on tax. If you have more than one job, you will receive separate P60 forms from each employer.
The P11D explained
The P11D form will be sent directly to HMRC by your employer if you’re provided with any ‘benefits in kind', such as company cards, interest free loans, private medical cover or assets provided to employees for personal use.
The P11D records how much each benefit is worth and will be sent to HMRC if your earnings including company benefits are greater than £8,500 in the tax year. Your employer will usually provide you with a copy, but if they don’t, by law they must at least inform you of its contents. However, you may not receive a P11D if you do receive company benefits but your employer takes the tax you owe on these benefits directly out of your pay.
If you are an employer and you provide benefits to your employees, you will need to submit P11Ds to HMRC for each employee receiving benefits at the end of the tax year. You will also need to fill out a P11D(b) form which tells HMRC how much Class 1A national insurance you need to pay on the benefits you have provided.
The deadline for employers to submit P11D and P11D(b)s online is 6th July following the end of the tax year. This is also the deadline for employers to give copies of this information to employees. Any Class 1A NICs to HMRC must be paid by 22nd July following the end of the tax year.