RTI – The P45 and the P46

Friday, January 6th, 2012

Before Christmas, we started to look at the information that RTI would require us to submit as and when we pay our employees.  We have been side-tracked a little this week by an important issue that will involve a change to the way that we work – the issue of processing the P45 and P46 for our starter and leaver employees.

In an attempt to clarify some processes, HMRC issued their ‘Starters and Leavers Scenario’ on 07 December 2011.  Before we look at the information contained in this document, it is necessary to look at some new terminology:

The Leaver Statement

When an employee leaves employment, regulation 36 of the Income Taxes (PAYE As You Earn) Regulations 2003 requires form P45 to be completed, Part 1 of which is sent to HMRC and Parts 1A, 2 and 3 given to the employee.  These Regulations are specific as to the information which must be contained on each of these Parts.  The Draft RTI PAYE Regulations published on 14 November 2011, see below, contains the proposal to insert another regulation 36ZA into the 2003 Regulations, which will abolish the P45 for ‘a Real Time Information employer’ (this is defined as an employer who is obliged to return information via RTI submission and does not fall into one of the current exemption categorised for online filing).  Instead of issuing the P45, on cessation of employment the employer will be required to issue a Leaver Statement.  Largely, this will contain the same information as the P45.  Further, the rules that apply to issuing a P45 on termination and accepting a P45 on commencement of employment also remain largely the same.  The exception is that, when checking the P45, if the previous tax does not match the previous earnings, the correct tax is only entered into the payroll system rather than making a separate declaration to HMRC as now (via item 13 on the P45).  The Draft Regulations (PAYE) inserts the relevant sections into the 2003 Regulations ensuring the same treatment.  The Leaver Statement must contain the following information:

  1. Employer’s name
  2. Employer’s PAYE Reference
  3. Employee’s NINO (if known)
  4. Employee’s name
  5. The date on which the employment ceased
  6. The latest tax code
  7. An indicator as to whether the code was operated on a cumulative basis
  8. If cumulative, the tax week or month in which the final payment was made
  9. Total payments made to date and the total tax deducted, and
  10. If different to the information in (h.) above, the total payments to date in this employment and the total tax in this employment

As can be seen, the information is very much the same as we are currently putting on the P45.  The exceptions (Student Loan indicator, address, employee number etc) would all be made up of information contained in the RTI file to HMRC.  However, the Leaver Statement, required by the new regulation 36ZA, has not had a format defined by HMRC.

Essentially, and simply, the Leaver Statement is the RTI equivalent of the P45.  Knowing this, we can revert back to HMRC’s ‘Starters and Leavers Scenarios’ document.  This contains some information which we need to be getting used to:


Right at the start, it is important to remember that the P46 will not exist for an employer that is required to submit via RTI (a ‘Real Time Employer’).  All of this information will be entered into the payroll system and returned as part of the RTI submission.  Further, all employees, regardless of length of service or rate of pay will have to be on the RTI submission, therefore, form P38A also becomes redundant.

After the data gathering exercise of name, address, NINO, DOB and current gender, HMRC define the ‘normal’ starter process as being comprised as a series of four ‘starter questions’ that should be asked of the employee:

  1. Do you have an income contingent student loan to repay?
    • If ‘Yes’, start deductions
  2. Is this your first source of earnings or pension in the current tax year?
    • If ‘Yes’, use Emergency Code on a cumulative basis
  3. If no, do you have a Leaver’s Statement?
    • If ‘Yes’, check and use the relevant figures
  4. If no, is this your only job or pension?
    • If ‘No’, use BR on a non-cumulative basis

If the employee does not answer the questions, apply code 0T on a non-cumulative basis.

Clearly, these four questions replicate the existing A, B, C and D boxes on the P46 and the ‘Y’ indicator and pay and tax information from the P45.  Note that the P46 can still be used to gather information from employees, however, it is not submitted to HMRC in the P46 format once the employer becomes a Real Time Information employer.


The leaver process remains pretty much the same as currently, with the employee receiving the Leaver Statement rather than the P45.  The contract end date is transmitted to HMRC via RTI, on or before the payment is made to the employee.

HMRC outline a scenario where, for one reason or another, the employer may withhold the P45, currently, as they are aware that there is an outstanding payment to be made.  Typically, this may be an outstanding bonus, commission or overtime.  In this scenario, HMRC say that they expect the RTI submission to show the employee’s contract end date and that any payments made after this should be made as ‘payments after leaving’.  The reason for this is to ensure that the employee is never in receipt of double tax allowances in two employments.


RTI will bring changes to the way that we work.  We have acknowledged this many times.  Change for the eventual simpler and more effective processing is to be encouraged; however, there will be an initial administration overhaul and burden for many employers.

The lack of a defined format for the new Leaver Statement is the issue that is concerning the profession.  If the draft legislation remains as it is, amongst others, there is the possibility of the Leaver Statement varying from one employer to another, with the format depending on the way that payroll software has configured it.  Employers could, as it stands, just alter the payslip slightly and this could be used as the Leaver Statement.  The obvious result of this ‘user-defined’ Leaver Statement is an increase in errors, missing information being passed from one employer to another and to the employee themselves.  The smooth starter situation that we have become used to may be a cause for the employee’s tax situation to be incorrect in their first payday – isn’t this totally against the concept of the greater accuracy that RTI promised us?!

Another argument might be the total abolition of the P45 / Leaver Statement process altogether.  Of all the P45s that we issue in the payroll department, the P46 still seems to be the most common form that we receive for a new starter – P45s are either not being passed on or are being lost by the employee.  If the P45 / Leaver Statement process is done away with altogether, would this have any greater impact than a ‘user-defined’ situation?

HMRC have acknowledged that there are issues with the proposal in their Technical Note – see the link below.  There is also an opportunity for interested parties to comment by 09 January 2012.

Further Information:

PrintFriendly and PDF

Bookmark and Share

Tags: , , , , ,

2 comments on “RTI – The P45 and the P46”

  1. KAREN FREETH says:

    Provision of a leaver statement and not a P45 is fairly worrying to me.
    1 – it will have no pre-determined format, and the employee may not realise the significance of the form.
    2 – if it is not an official HMRC form, are there any restrictions on re-issuing a leaver statement.
    3 – it would be simple for an ex-employee to photocopy the form and therefore give a leaver statement to more than one employer, with the effect of creating double tax-allowances. We are frequently given a part 1a by a new member of staff, assuming that we can use their previous tax code.

  2. Hi Karen,

    You are not alone in voicing your concern. Learn, amongst others, have put forward their concerns about the Leaver Statement expressing views similar to the ones you have raised. HMRC have realised the concern and will, hopefully, listen to this and the voices that are being raised in the payroll profession. The intention to introduce the Leaver Statement is in draft legislation form at the moment, with a consultation on it which closes today.

    I promise to keep you updated via the Newsletter as soon as I know anything more.

    Kind regards,

    Ian Holloway

Search – Payroll Help

Social Media

Payroll Update 2013