Every UK employer with an in-house payroll department must understand, and be able to efficiently issue P60s. These important forms summarise an employee’s pay and deductions for the tax year, but there are a few key variables to keep in mind and plenty of room for error. As is the case for almost everything to do with business accounting of course.
Here we are going to take a closer look at the ins and outs of the P60 tax and its use, as well as the best way to ensure that you are making the best possible use of the,
What is a P60? A Basic Explanation
A P60 is a document that summarizes an employee’s total pay and deductions for the previous tax year.
It contains information about their pay, pension, and/or working tax credits. It details income tax and national insurance contributions (NICs) paid, as well as student and postgraduate loan repayments and statutory payments like maternity and paternity pay. A P60 also offers a final tax code.
Who Must be Given a P60 and Why?
Every year, you must give a completed P60 tax form to every employee who worked for you on April 5th, the last day of the tax year, and for whom you completed a P11 deductions working sheet or a full payment submission (FPS).
Employees must keep a record of their taxable income for at least 22 months after the end of each tax year, under UK law. They may require it to prove how much tax they have paid, such as when filing a tax return, claiming back overpaid tax, or applying for any means-tested benefits like tax credits. Employees may also need it as proof of income if they apply for a loan or mortgage.
If you are a limited company director who receives a salary, you must issue a P60 to yourself, but because sole traders do not receive a salary, they are not required to issue a P60 to themselves, but they must provide one to any employees.
What are an Employer’s P60 Responsibilities?
P60s must be distributed to your employees by the 31st of May following the end of each tax year. Employees who stopped working for you before April 5th should have been given a P45 form with their salary and tax information, so no P60s should be issued.
Even if an employee worked for you more than once during the tax year, you should only give them one P60.
Can I Issue Digital P60 Forms?
You can issue P60 forms to your employees in digital form as long as they agree to that form of delivery. The law does give them the right to request a paper form instead, and so whatever method you make use of to issue these critical forms should be capable of doing both. You should also ensure that you ask employees which they prefer to receive (or to make things easier, offer both as standard.)
Can a P60 Be Changed?
If your HR and payroll systems do not integrate well, errors can occur on P60 forms, and, obviously, if you have incorrect information on file in the first place.
It’s always a good idea to double-check your employees’ information on a regular basis so that you can keep your accounting software up to date with any changes.
If you need to make a P60 change for any reason, give your employee a new P60 marked “replacement” (which can be paper or electronic) or a letter confirming the change.
Need help with a P60 explanation, or any aspect of business accounting? The experts at Pearl Lemon Accounting can help. Get in touch today to discuss your accounting needs. ta