In the months before leaving the Armed Forces it can seem as if you are being swamped with information that you need to digest and forms that you need to submit, and one of the final things you will have to deal with concerning your time in the Services is your P45. In this article we explain what a P45 is and what you should do with it.
The P45 is a form which is generated by the pay computer and sent to you after you have received your final pay statement. It shows details of your tax code, when in the tax year you left the organisation, how much you earned up to that point and how much tax you have paid during that tax year. It also contains your name, date of birth and National Insurance Number. Employers are obliged to send you a P45 by law – if you don’t receive one, you should ask for it.
The form comes in four parts but you will only receive three. Part 1 will have been sent by the pay authorities directly to your tax office as a formal notification of your cessation of service in the Armed Forces. Parts 1A, 2 and 3 are the parts which will come to you.
Part 1A is for your records, so hang on to it – it may help you (or your accountant) if you are going to have to fill in a Self-Assessment Tax Form. You would be self-assessing if, for example, you left the Armed Forces with a pension or AFPS05/15 Early Departure Payment (EDP) Scheme benefits in payment and had other paid work or taxable income.
Parts 2 and 3 are for your new employer. If you are going straight to a new job, you should hand Parts 2 and 3 to your new employer. That will allow him or her to get your tax right from the outset. Some of you will leave before final pay run and that means you will not have your P45 until some weeks after leaving the Armed Forces. In this case, your new employer will use an emergency tax code which assumes that you have no tax free allowance. Use of an emergency tax could see you paying more tax than is necessary for a short period but, as soon as the relevant parts of the P45 are handed over, your tax will be adjusted in accordance with the tax information that the P45 contains.
Some of you may decide to work during your terminal leave. Again, you will not have your P45 and can expect to be taxed on any earnings you make during this period on the basis of an emergency tax code. You should hand over Parts 2 and 3 of the P45 as soon as you receive them in order that your tax can be correctly determined and any necessary adjustment made. Before you get too excited, this will not necessarily mean a tax rebate. The emergency tax code you would be put on takes 20% tax on everything you earn in your new employment but some of you will have a 40% tax liability on some of your earnings – that could mean a bill!
If you have no job lined up but intend working, it is a good idea to sign on at Job Centre Plus and hand them Parts 2 and 3 your P45. Those of you leaving with, for example, an AFPS 75 Immediate Pension or EDP Scheme income might think there is no point, as the level of your income means that you are not entitled to benefits. However, by signing on and handing in your P45, your National Insurance Contributions (NICs) will be kept up to date by Job Centre Plus and this matters as NICs contribute to your State Pension entitlement. Remember, you need 35 years’ worth of NIC contributions to qualify for the full Single Tier State Pension, so all contributions matter. When you find a job, Job Centre Plus staff will give you an updated P45 for you to hand to your new employer.
If you are not intending to work – maybe you are going back into full time education, intend to live abroad or can live happily on your pension without further employment – you should send Parts 2 and 3 of the P45 to HMRC. It may well be that, once they are aware that you will not be working, they will reassess the tax you have paid up until your date of discharge and refund any over-payment.
If you are going to be self-employed, Parts 2 and 3 of the P45 are of no real use to you, and you will have Part 1A in your records to help you with your Self-Assessment Tax Return. In either of these circumstances you should send Parts 2 and 3 of the P45 to the tax office.
Whatever you do, do NOT put any part of the P45 in the bin. Remember that the P45 contains lots of lovely personal data which could be very useful to unscrupulous people who would like to misuse it.
More information about the P45 can be obtained here
If you are a member of the Society and have any questions on this or any other pensions issue, please contact us at firstname.lastname@example.org. If you are not a member but would like to join click here
Author Mary Petley - written for the July issue of Pathfinder Magazine here