Self employed… p45?

fest0r

Do you get issued with a p45 when starting (or finishing) self employment? If not, what do you take to a new employer?

Thanks

Paul_Varjak

fest0r: You get a P45 when you finish with an employer.

If you are starting your first job or your previous employer has not given you a P45 or you are starting a new job (whilst continuing with another) or the P45 has been lost, or you are a student doing vacation work, your new employer will have to complete a P46 and get you to sign it. You will have to provide your National Insurance number for the P46.

fest0r

Thanks for the info Paul

So changing from self employed to a standard employee you have to fill out the p46 and accept an emergency tax code until it's sorted out?

Also, when finishing self employment (changing to benefits or a normal job) do you receive an equivalent to a p45?

Paul_Varjak

fest0r wrote:

Thanks for the info Paul

So changing from self employed to a standard employee you have to fill out the p46 and accept an emergency tax code until it's sorted out?

I think that is correct. They will issue a BR (Basic rate) tax code (with no tax allowances) meaning you pay tax on all you income until it is sorted out.

fest0r wrote:

Also, when finishing self employment (changing to benefits or a normal job) do you receive an equivalent to a p45?

The reason for the P45 is so it can be given to a new employer showing your earnings during the current tax year. If you are self-employed you will not know your earnings until you have completed your Tax return. Your employer has to complete P46 before your first pay packet so there seems little point in a 'P45 equivalent'.

I guess that once you have completed your Tax return for self-employment, the Inland Revenue can then give you a full Tax Code. I suppose they may be able to give a provisonal Tax Code subsequent to issuing the BR code (but before you submit self-employed Tax Return) based on self-employed earnings in a previous year but I am not really sure.

I have never been self-employed so you may wish to wait for the 'experts' to reply!

Poppy9

When you cease to be self employed and join an employer just tell them your situation also ring the tax office to tell them of your change of status. You will then be given the basic tax code for the year. You (or your accountant) will have to draw up final accounts and fill in a self Assessment tax return for the year in which you ceased to be employed as normal. You will also have to fill in another claim form as well which will detail earnings - you will need your P20 given at the end of the tax year by your new employer to complete this.

Pay special attention to the notes of guidance for businesses that have ceased trading as if I remember correctly you have to make sure the dates fully reflect the trading period i.e. might be 8 months or 16 months depending on your trading year. Also if you started your business before Self Assessment started there is someother adjustment - it should be detailed in the notes of guidance. Be prepared for the tax office to get this bit wrong. They did with me and sent me a huge tax bill because I had included profit for longer than the normal 12 months. I pointed out their error and referred them to their own notes of guidance and the fact I started trading before self assessment began. The chap I spoke to told me I was mistaken and the computer was right and if I persisted they might do a full tax audit so I would be better off paying up. I decided I would call into the tax office to explain to them the reason behind my figures and show them their own notes of guidance. Luckily I didn't need to as a few days later a revised assessment was issued for a much lower amount in line with my calculation.

Also its taken years for them to stop sending me self assessment forms as now fully on PAYE.

fest0r

Thanks again Paul and thanks Poppy

That’s what I needed to know and I will keep an eye on the situation for errors etc.

Cheers guys

Trow

The emergency tax code is actually 474L W1/M1 (this year) which (in simple terms) means you do get the tax allowance but only for the weeks/months worked and not for the full year. You will be given this code if you say that it is your main or only job.

If you say you have a pension as well, or if you tick none of the three options on the P46 then you will be taxed on the full income at basic rate.

Paul_Varjak

Trow wrote:

The emergency tax code is actually 474L W1/M1 (this year) which (in simple terms) means you do get the tax allowance but only for the weeks/months worked and not for the full year. You will be given this code if you say that it is your main or only job.

If you say you have a pension as well, or if you tick none of the three options on the P46 then you will be taxed on the full income at basic rate.

So, assuming just one job, you only get the BR code if P45/P46 did not end up in the hands of the Inland Revenue, otherwise you get a standard Tax code (but on a W1/M1 basis)? I assume that once tax return for self-employment is made, the W1/M1 will then be 'dropped' so you then have a standard tax code?

Savvy_Sue

Paul_Varjak wrote:

So, assuming just one job, you only get the BR code if P45/P46 did not end up in the hands of the Inland Revenue, otherwise you get a standard Tax code (but on a W1/M1 basis)? I assume that once tax return for self-employment is made, the W1/M1 will then be 'dropped' so you then have a standard tax code?

That would be my understanding. Your new employer should be able to work out which tax code to use initially based on what you tick on the P46, and that won't change until the tax office give them other instructions. I believe that when they change your tax code they write to you and the new employer.

So it's worth keeping an eye on your payslips: I realised the other day that a colleague still has a BR code because when they started this wasn't their only or main job, but it is now and they still seem to have it over a year and a new tax year later!

Trow

The BR code should only be given in the following circumstances:

The employee did not provide either a P45 or P46
The employees tax code in their previous job (per the P45) was BR
They cannot tick any of the three boxes on the P46 (i.e. first and only job, main employment or receive a pension as well as wages - I paraphrase)
They tick Box C - that they also receive a pension.

If the employee ticks box B, it is their main or only job, then they should be given tax code 474L W1/M1

If they tick box A, first job since leaving school, they should be given tax code 474L.

(The tax codes change on 6th April again)

It doesn't matter whether the Inland Revenue receive the forms or not, the codes are decided upon by information received.

The W1/M1 is dropped at the start of the financial year following the one in which they were given the code (assuming the Inland Revenu has not sent advice to say otherwise).

HTH

Savvy_Sue

Trow wrote:

The W1/M1 is dropped at the start of the financial year following the one in which they were given the code (assuming the Inland Revenu has not sent advice to say otherwise).

Now that's something the OP should take note of! Good tip for those who've changed jobs and had a W1/M1 code until now.