A P45 is the form an employer gives a worker when their employment ends. It records pay and tax deducted in the current tax year and the tax code, allowing a new employer to apply the correct deductions without delay.
In one line: A P45 is the leaving certificate that carries pay and tax details from one employer to the next.
How a P45 works
The employer issues a P45 on the last day of employment or shortly after. It shows total pay and tax to the leaving date, plus the tax code, so payroll continuity is maintained.
Someone leaving a job in October who has earned 18,000 GBP and paid 1,200 GBP in tax hands the P45 to their next employer. The new payroll uses those figures to continue the cumulative calculation rather than starting fresh.
Without a P45, a new employer may apply an emergency code until HMRC confirms the correct one, which can mean temporary over or underpayment of tax.
P45 vs P60
A P45 is issued when employment ends and covers pay and tax up to the leaving date. A P60 is issued annually to current employees and summarises the whole tax year.
A leaver therefore receives a P45 from the old job, while staying in post produces a P60 each April. The two serve different points in the employment timeline.
Primary source: GOV.UK: P45, P60 and P11D forms