Monday, 6 February 2012

P45 lives on

The P45 has been given a temporary reprieve by tax chiefs after employers said they didn't want to see it go.

A plan to axe the form in favour of a "leaver statement" has been dropped by HMRC, the tax office - for the moment..

The P45 dates back to the year of D-Day, 1944, and the launch of taxation by PAYE or Pay-As-You-Earn. Showing pay and tax deducted in the year so far, it allowed the tax man to keep track and, with luck, avoid overcharging later on.

It wasn't long before being handed a P45 entered the language as another term for getting the sack. By law it has to be issued to workers when they move to a new employer or lose a job. 

Now, HMRC is moving to a system of Real Time Information ("RTI"), under which staff movements will be recorded in a much more timely fashion, making the P45 unnecessary - or so HMRC thought.

RTI trials start in April. The P45's days were numbered. Until today...

"Employers told us to keep the P45," said Stephen Banyard, head of personal tax, "which is exactly what we have done."

The point companies made as that P45s are widely recognised and widely used, not just by new employers, but by banks, tax advisers and public bodies, as evidence of identity. 

The "leaver statement" would be confusing and it might actually increase administration.

So Once an employer joins RTI, starter and leaver information will be recorded automatically and P45s will continue to be used to exchange information between employees and employers.

But what happens once the new system is bedded in? A new attempt to get rid of the P45?

HMRC replies that it will consult on what will be needed once all employers are reporting via RTI.

Even so, tax experts expect another couple of years will go by before the idea of scrapping the P45 comes up again. 

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