Leaving a job
We look at the tax implications of leaving your job and what you might need to consider.
Content on this page:
Introduction
When you leave a job, your old employer should complete form P45 and provide this to you. The form P45 shows your total pay and tax to date in the tax year for that job, and the final tax code that your employer used.
A form P45 has four parts. Your employer sends the information in part 1 to HMRC immediately or as soon as possible after the last pay date. Your employer should give you the other three (parts 1A, 2 and 3) as soon as possible.
You should keep your P45 safe as your employer will not be able to provide you with a duplicate if you lose it. But your employer should be able to provide you with a ‘statement of earnings’ on company-headed paper. This acts as a replacement for a P45.
No new income
You may leave your job, but not have any other new source of income during the tax year – for example, you may not be starting a new job, claiming benefits or drawing a pension.
In this case, you may be able to claim a tax refund before the end of the tax year, because it is unlikely that you will have used your full personal allowance. This is because the personal allowance is usually divided throughout the year, so you receive a proportion each time you are paid.
If you stop work part-way through the tax year, you will not have received your entire personal allowance and may have paid too much tax when looking at your total annual income.
There is information about how to claim a tax refund on our page PAYE tax refunds.
Starting a new job
If you start a new job in the same tax year that you left your old job, then you should hand parts 2 and 3 of your P45 to your new employer.
Keep part 1A of form P45 for your own records.
Once you receive your new tax code from your new employer, you should check that any items relating to your previous job have not been carried forward into your new tax code. For example, if in your old job, you received an adjustment to your personal allowance in respect of flat rate expenses for cleaning work clothing, but this is no longer relevant to your new job, then make sure the adjustment has been removed from your tax code. If you do not, you may underpay tax on your new employment income and face an unexpected tax bill once HMRC discover the error.
Starting to claim benefits
If you start to claim benefits when you leave your old job, you should give parts 2 and 3 of form P45 to your Jobcentre Plus office.
Keep part 1A of form P45 for your own records.
Starting to study
You may have given up a job to return to education. Most courses start from September, but the tax year runs from 6 April to 5 April so if you have been working from April to September and then you stop, it could be the case that you have not used all your personal allowance. If so, then you may be due a tax refund (see the explanation in ‘No new income’ above).
If you are not going to work again during the tax year, you may be able to claim a tax refund before the end of the tax year. Alternatively, you can wait, and claim a refund after the end of the tax year. For more information see our page PAYE tax refunds.
Redundancy
It may be the case that you have been made redundant; if so, you will need to understand how any redundancy payment may be taxed. See our page on redundancy for more information.
National Insurance contributions
If you are taking a break from working, then you may want to consider your National Insurance contribution (NIC) position. By paying NIC you have been building up your entitlement to certain benefits, such as the state pension. However, by stopping work you may find that you have not made overall sufficient contributions.
You can find out how much state pension you are expected to receive at GOV.UK - based on this you may decide to pay voluntary Class 3 NIC. Before committing yourself, you should consider if it is necessary to make them, taking account of how many qualifying years you have already towards your state pension and your future potential to make up any gaps. You can check how many qualifying years you have already through your Personal Tax Account and you can usually pay Class 3 NIC within six tax years.
There is more information on voluntary Class 3 NIC in our Tax and NIC section. Do bear in mind you may be eligible for National Insurance credits if you are claiming child benefit, for example, which can help plug any gaps in your contribution record.
