PAYE forms are forms that employers must provide to their employees to show what tax has been deducted from their salary. PAYE stands for ‘Pay As You Earn’ and it’s a system whereby income tax and National Insurance Contributions (NIC) can be collected directly from your employer’s payroll. You will only receive PAYE forms if you are employed, which means sole traders do not receive PAYE forms. If you are a director of your own limited company and you pay yourself a director’s salary through a PAYE system, then you will also receive PAYE forms.
The most common types of PAYE forms you are likely to receive include the P45, P60 and P11D which are explained below:
A P45 is issued by an employer when an employee stops working for the business. The form shows how much tax has been paid from the salary so far in the tax year (from 6 April until 5 April). The P45 is made up of 4 parts. The employer must send Part 1 to HMRC and give all other parts to the employee. Part 1A should be kept by their employee for their own reference and part 2 and part 3 are given to the new employer (or to Jobcentre Plus if applicable). Employers are legally obliged to provide P45s to all employees that finish working for the business, including where employees resign, they are dismissed, their contract has come to an end or they have been made redundant.
The P45 should be provided to a new employer so that they are aware of how much income tax you have paid so far, in order to be able to add you onto their payroll correctly. This will ensure that you continue paying the right amount of tax for the rest of the year in new employment. When new employers receive part 3 of the P45, they need to send this to HMRC to inform them that the employee has now started employment with their business. There will be some situations where an employee is unable to provide a P45, such as when they are starting their first job, if they have previously been self-employed, or if they are taking on a second job. In this case, employers will need to use a ‘Starter Checklist’ to collect information (this has superseded the old P46 form that is no longer in use).
The P45 form can be produced using payroll software. Some companies will be able to do this themselves in-house, whilst others may use an external payroll company or firm of chartered accountants to manage payroll for their employees. For those who complete payroll themselves and do not have payroll software, it is possible to use HMRC’s Basic PAYE Tools or order the paper forms from HMRC (note that you cannot download blank forms and they will be posted out to you).
A P60 is issued by an employer to all employees every year no later than 31 May so long as employees have been employed since at least 5 April. The P60 summarises the total amount of tax an employee has paid through the PAYE system during the financial year. It is the employer’s responsibility to keep records of pay for a minimum of 3 years. If an employee loses their P60 and requests another one, employers should be able to provide a copy and mark it as a ‘duplicate’. If the employee requests a copy that is older than 3 years, employers are able to provide a ‘statement of earnings’ on company headed paper instead.
Employees need to keep hold of the P60 as they will need it for claiming back overpaid tax, applying for tax credits, proof of income when applying for a loan or mortgage, or providing it as part of a self-assessment tax return where they have other personal income that needs to be declared. Where an employee has multiple employments, they will need to receive a P60 from each individual employer.
As with the other common PAYE forms, employers are able to produce P60 forms using payroll software, HMRC’s Basic PAYE Tools or ordering paper forms from HMRC as mentioned above.
P11D and P11D(b)
P11D forms are created by employers to inform HMRC of any taxable ‘benefits in kind’ (BIK) that are received by employees. They need to be submitted to HMRC by the 6 July every year for each individual employee that receives taxable BIK (where their earnings are in excess of £8,500 per year including the value of the benefits). If this is filed late then there is a £100 fine per every 50 employees for every month it is late by.
The P11D consists of 14 sections. Employers are allowed to complete only the relevant sections and for only the benefits that apply – such as for a company car, mileage or fuel allowance, private medical insurance etc. In these sections, the cash value of the benefit needs to be included but there are specific rules on how to calculate this – which must be followed depending on the benefit. You can check for calculations on the Government website.
The P11D(b) is an additional form that needs be submitted alongside the P11D. This form declares how much NIC needs to be paid on the BIK by the employer. Employer’s National Insurance is charged at a rate of 15.05% for the tax year 2022/23. The deadline for paying is the 19 July following the end of the tax year, or 22 July if payment is made electronically.
Although employers are not required to provide employees with a copy of their P11D, they must inform them of what has been included, also by the deadline of 6 July. This allows for employees to check that everything that has been reported is correct. Employees may not receive P11D where the tax due on the benefits received is taken directly from their salary through PAYE. Employees are advised to regularly check and ensure they understand their payslip to see what (if any) deductions are being taken.
Many P11D forms will also be accompanied by ‘working sheets’. These sheets are automatically generated when completed through payroll software. If you require a payroll solution you may want to consider our Payroll service, or find out why outsourcing your payroll could be less expensive than managing it in-house.