Many of you will have joined the Armed Forces from school, college or university, and will never have received a P45 before. In this article for we wrote for the winter 2018 edition of ER Magazine we explain what it is and what you should do with it.
In the months before leaving the Armed Forces it can seem as if you are being swamped with information you need to digest and forms you need to submit. One of the final things you will have to deal with concerning your time in the Services is your P45. 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 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. Parts 1A, 2 and 3 will come to you. Part 1A is for your records, so hang on to it – it may help you when you fill in your Self-Assessment Tax Form. 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 assume that you have no tax free allowance and may take more tax from you than is necessary. 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 without any allowances. 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 tax code you are 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 means 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 an AFPS 75 Immediate Pension or an Early Departure Payment 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. 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 – 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 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 they contain your personal details and these are very useful to people who would like to misuse them.