ACCA Advanced Taxation (ATX) Practice Exam

Which of the following is not a benefit of the P45 form?

1. Helps track tax paid during employment

2. Used for tax assessment of future employments

3. Shows total income earned during the tax year

4. It indicates an employee's starting tax code

The correct answer is: Shows total income earned during the tax year

The P45 form serves several key functions in the context of an employee's taxation in the UK. One of the essential aspects is that it provides information about the tax that has already been deducted from an employee's earnings while they were employed by a particular employer. It tracks tax paid during that period, which is beneficial for accurate tax reporting and compliance with HMRC regulations. The form is also pivotal for future employments, as it can be used for tax assessments when the employee starts a new job, ensuring that the correct tax code is applied based on previous earnings and tax paid. Additionally, the P45 includes information about an employee’s tax code, which indicates any reliefs or entitlements that may apply to the individual. This starting tax code is crucial for calculating the correct amount of tax deductions going forward. However, the choice concerning showing the total income earned during the tax year isn’t entirely accurate. While the P45 does summarize earnings in terms of total taxable income during the employment period, it does not provide a complete representation of all income earned across the entire tax year, especially if the employee had multiple employments. Thus, the assertion that the P45 shows the total income earned during the tax year does not capture the full context of