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P60/P45 – What are the correct procedures at the end of the tax year?

P60/P45 – What are the correct procedures at the end of the tax year?
Paul Chappell
Written by Paul Chappell
Friday, 19 July 2019 15:33

This may seem a strange blog to be writing at this time of the year, however there is a major lack of understanding over what is required at the end of a payroll year, when an employer changes payroll provider or merges with another employer that requires a new PAYE scheme and therefore employees transferring with a cessation date of 31 March.

There is understandable concern at the issuing of a P45 and the perception that most employees would have receiving a P45. Year-end procedures must be correctly followed to ensure that employees receive the correct documentation.

Scenario – change of payroll provider from the first month of the new tax year

Let’s look at an employer changing payroll provider from month one of the new tax year, the last pay date was 31st March in the previous tax year.

There are two parts of the Income Tax (PAYE) Regulations 2003 that are very specific and dictate whether a P45 should be issued or a P60

1.     Regulation 36 Income tax (PAYE) Regulations 2003 states that ‘on ceasing to employ an employee in respect of whom a code has been issued, the employer must complete form P45’
2.     Regulation 67 states ‘following the end of the year an employer must give a P60 to every employee who was in employment on the last day of the tax year’.

Following Regulation 67, employees leaving employment on 31 March DO NOT receive a P60, they should be given a P45. 

Because the employment ceased on 31 March, they do not meet the criteria of Regulation 67, they were not in employment at the end of the tax year at the old employment PAYE scheme.

But what about if an employee, now on the new PAYE, has their pay pro rata'd from 1 April to 5 April, then should a P60 issued? In a word, NO, unless there is a pay date between the 1st and 5th of April. 

For monthly paid employees, the next pay date is the end of April, therefore they are in the new tax year, paid under the new PAYE scheme.

Unless the correct procedures are followed, employees can be left in no mans’ land, without a P60 nor a P45! If the payroll provider has changed, the old provider would be required to issue the P60 or a statement of earnings for each employee.

For once the legislation is written clearly and simply.

For further information please contact Paul Chappell, Head of Legislation and Compliance at Dataplan Payroll Ltd, on 03331 123456

Paul Chappell

Paul joined Dataplan from HM Revenue and Customs in 2007 and runs our PAYE compliance and investigation services.

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