What is a P45 and P60?

This video is just a quick one to explain what a P45 and a P60 is in relation to what you need to do for your self assessment tax return.

So professionally I often get asked by musicians and actors is how do they know if they are being paid via pay-as-you-go, or PAYE as it is known. Well, the way to tell is if you’re given a payslip every week or every month, and this will come from the business or individual that is effectively employing you. If you are employed you are subject to pay-as-you-go tax, which is PAYE, and you’re also subject to National Insurance. And this is Class One National Insurance, not to get confused with your Class Two and Class Four, if you are self-employed for any reason.

The employer is responsible for deducting these taxes from you, as well as other deductions like student loan repayments. If you’ve got any charges on your income, they might have to statutorily take them off your pay.

What is a P45 and P60? Am I being treated as an employee?  - Performance Accountancy

So the reason we can tell whether you are being treated as self-employed or employed is on your payslip that you should get each week or month, whenever you are paid, check the tax code and the NI code. So the main giveaway to know whether you are not being treated as an employee is if the tax code says NT, that means no tax is being deducted. And if your NI code is X, that means no National Insurance is being deducted from you. The reason it goes through the payroll system is it’s much easier for people to administrate that than it is sending out individual cheques and remittances and all that type of stuff (cheques, when did cheques come back?) Okay, so bank transfers and all the admin and paperwork that goes with it.

So what’s a P45 and P60?

Well, a P45 means you had left the employment during the tax year. And this is an example of how one of them looks. Obviously I’ve removed the person’s name and all the important details so you can’t tell who it is. So this person left in a year. You can see here that they left on the 1st of April, 2020, and their total pay for that year was 288 pounds. So this document should be issued with your last payslip.

Example P45 - What is a P45 and P60? - Performance Accountancy

Now a P60 is something you are issued by your employer if you are still employed on the 5th of April, at the end of that tax year. Legally, it doesn’t have to be issued until the 31st of May, but you must have one if tax has been deducted from you during the tax year. Okay. It would normally say, “This is your pay and income for the current year or that employer.” That’s a bit further down, which I haven’t taken a screenshot of. So if these figures here are blank, then you might find a bit further down in the P60 it says, “This employment.” This is particularly important if you keep changing jobs throughout the year.

Example P60 - What is a P45 and P60? - Performance Accountancy

So people on a typical backstage contract with film companies, makeup artists, costumiers, lighting people, they often go to work for a few weeks on a film, move films, get a new employer. So you quite often get lots of P45, and the easiest way for an employer to do things would be to put you only on this employment. So the P60 at the end of the year, the last employer will just have this employment and probably won’t have any of these bits completed.

But if you’ve only worked for one or two employers, you will see this completed that will say your total for the year. If you have worked for other employers it will say, “In previous employment,” and then in this current employment. As you’ll see from this person here, he’s only had one employment through the year so he’s quite simple. Don’t tell him that though.

So if you have to do a self-employed tax return, this asterix one is the bit you need from your P60. If you’ve had previous employments, you need to take the information per P45. Now that might sound a bit bad if you worked for an employer, left, gone back, left, gone back, as what happens in the film industry, because you might have three P45s from the same company. But that’s what you need to look out for your self-assessment tax return. So they are the figures that need to go in.

Now how do you put them in the tax return? well, that is subject to a different video. But if you go and do your own self-assessment tax return, assuming you have to do one, those figures might already be visible on your tax return. That’s because the employer has to do recording every single month for employees. So there’s automatic filling, it’s called real-time information. So HMRC should have that data. However, we employ tax agents to help us do things and that information is not visible to the tax agent. So you can only ask your client for this information. And obviously, you get frustrated because as far as you’re concerned, it’s in the tax return already.

So bear with us when we do ask for it, there is a reason for it. It’s because we can’t see it. The big flaw in the tax system is that we can’t actually see this information. Please, please, please keep copies of these documents. There are ways of getting information otherwise, which is subject to a different video, but please keep the documents, whether it’s electronic, on paper, or even both.

So it goes onto the tax return, irrespective of whether the income has been taxed or not. This is often the question I get. “Why do I have to give you these documents? It’s already been taxed, why’s it going into the tax return?” Well, the reason for that is the tax return is for all your income, no matter what the source is. So it could be PAYE, self-employment, rental property, dividends, interest. You only get one personal allowance that covers the main areas of income, be it employed income, pension income, self-employed income, rental property.

And the main personal allowance you get every year automatically goes to PAYE income. Or if you don’t have any of that but you have a pension, it automatically goes to your pension income. So you only get one personal, so you have to combine all your income together and then deduct the personal allowance. You’re not getting taxed on it twice, please don’t think that. There is an allowance that you take off at the end, you work out your total income. Don’t forget, income for tax purposes for self-employment is your profit on self-employment. So you work out all your income, deduct the personal allowance, and then deduct any tax suffered on PAYE income. There are different rules of foreign income, we’ll come to that in a different video.

So you’ve already then got an allowance for what you have already paid,  so you’re not going to pay it twice. Okay. Now potentially, if you have self-employment as well as PAYE employment and you make a loss in your self-employment income, wahey, that’s great. Well, probably not great. But if you’ve paid tax in your PAYE income, you offset the loss against PAYE income and you then get some tax back of PAYE paid. Woohoo, so you might get some money back. So bear in mind, that’s why it has to go into your tax return and we go, whoop-de-doop here’s some money coming back.

So I hope that explains what the P45 is, what the P60 is, why you need to give it to us and not to panic about the fact that you think you might be being duplicate taxed or double taxed. So I hope that helps. If not, please get in touch and we’ll try and answer your questions.

 

About the Author