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Employee leaving

Updated on 15 July 2021

Taking on an employee

What to do when an employee leaves your employment, including giving them a P45.

Illustration of a woman walking out of a door

For guidance on things to think about if you need to dismiss an employee, or if your employee resigns, see our Employment law section.

What is a P45?

When your employee leaves, you need to give them a P45. The P45 is an important document as it is the way in which pay and deduction details are transferred from one employer to the next.

If you are an online filer, you should be able to produce a P45 via your payroll software. Paper filers can get a blank P45 form from the Employer Orderline.

The P45 should include:

  • Your employer PAYE reference.
  • The employee's name, address, National Insurance number, date of birth, gender and works/payroll number (if you use one).
  • The employee's date of leaving and their tax code.
  • An indication of whether you've been making student loan deductions from the employee.

It should also include details of the employee's earnings and tax deductions and if the employee is on a cumulative tax code, then it should include:

  • their overall pay and tax totals for the tax year so far, including from any previous employments during the year, and
  • their pay and tax figures relating only to their work for you during the tax year, if these differ from the employee's overall totals for the year.

If the employee is on a Week 1 or Month 1 code (W1/M1), then it should provide their tax and pay figures relating only to their work with you in the current tax year.

A P45 has several parts. Historically, Part 1 of the P45 had to be sent to HMRC. However, the information contained on the P45 is now sent to HMRC via the RTI submissions, so Part 1 is now redundant.

The employer must give parts 1A, 2 and 3 of the P45 to the leaving employee. The employee should retain part 1A and give parts 2 and 3 to a new employer.

The rest of the P45 is provided so that the employee can have a copy of his pay and tax details for his own records and so that he can give a copy to his new employer. It does not need to be sent to HMRC.

There is no deadline as such, but the P45 must be completed as soon as possible after the employee leaves. Ideally it should be given to them on their last working day, or with their final payslip.

For more information on what to do when an employee leaves, see GOV.UK.

Online filers

When your employee leaves you need to:

  • enter the date of leaving in your records
  • work out the final pay, tax and other deductions to be made (in accordance with their normal tax code) – this should normally be paid to them on their last working day
  • include the details in the next Full Payment Submission (FPS) you make to HMRC
  • give your employee a P45

The above list covers straightforward situations. However there can be more complicated issues such as when you have to make a payment AFTER your employee has left and you have already given them a P45.

If you make a taxable payment (which would not include statutory redundancy pay) after you have already issued a P45, guidance is available on GOV.UK, but essentially you:

  • use tax code 0T on a ‘W1/M1’ basis and deduct National Insurance contributions and any student loan repayments as normal – if it is an ‘irregular’ payment like a bonus or accrued holiday pay you should treat it as a weekly payment for NIC purposes.
  • report the payment and deductions in your next FPS, using the employee’s original ‘Date of leaving’ and set the ‘Payment after leaving’ indicator.
  • give the employee written confirmation of the payment showing the gross amount and deductions.
  • add the additional payment in the ‘Year to date’ field, if the payment is in the same tax year.

The payment should be the only one in the ‘Year to date’ field if it is being paid in the next tax year.

You must never complete a further form P45 or amend a P45.

For more guidance on what to do in this scenario and others, see CWG2 – Further Guide to PAYE and NICs (para 1.14).

If you use HMRC’s Basic PAYE Tools software (BPT), then you can find a guide that gives you step-by-step help on what to do when an employee leaves on GOV.UK. It contains examples of the screens you will see in BPT and simple to follow instructions.

Paper filers

When your employee leaves, you need to:

  • enter the date of leaving in your records
  • work out the final pay, tax and other deductions to be made (in accordance with their normal tax code) – this should normally be paid to them on their last working day
  • include the details on the next RT2 (Full quarterly payment summary) you send to HMRC
  • give your employee a P45.

If you need to make a taxable payment (which would not include statutory redundancy pay) to an employee who has already received their P45, then the HMRC guidance on what to do is in the booklet RT7 – Guidance for employers exempt from filing Real Time Information online.

Essentially you:

  • Use tax code 0T on a ‘W1/M1’ basis and deduct National Insurance and any student loan repayments as normal – if it is an ‘irregular’ payment like a bonus or accrued holiday pay you should treat it as a weekly payment for NIC purposes.
  • Include the payment and the PAYE tax and NICs you have deducted on the employee’s payroll record.
  • Give the employee a letter showing the date of the payment, the gross amount, and the PAYE tax you have deducted and confirmation that the payment is a post-leaving payment.
  • Include the details and show the original date of leaving on the RT2 – Full quarterly payment summary.

You must not give the employee another form P45 or amend a P45.

For more detailed help, please see the CWG2 – Further Guide to PAYE and NICs (para 1.14).

Payments you might make

Various pay elements may be due to your employee when they leave, for example notice pay, accrued holiday pay or statutory redundancy pay.

Notice pay

Both the employee and employer are normally entitled to a minimum period of notice on termination of employment. This will be the amount stated in the contract or the statutory minimum notice period, whichever is longer.

The notice period is the amount of time between the decision to terminate an employment contract and the date that the contract actually ends. This is regardless of who actually makes the decision to terminate, whether it’s the employee because they want to leave or whether it’s because you want the employee to leave.

You can find more on notice and pay during the notice period on the ACAS website.

If you do not wish your employee to work their notice period, you could give them a payment in lieu of notice. This represents pay they would have received during the notice period. Any such payment will be treated as earnings for PAYE tax and NIC purposes, however exactly how you deal with this will depend on the timing of the payment - e.g. whether it is before or after the P45 has been issued, as described above.

You may not be obliged to give your employee a notice period or payment in lieu of notice if you summarily dismiss them (in cases of gross misconduct, such as for theft or fraud).

Accrued holiday pay

When an employee leaves your employment - even if you have dismissed them without notice for gross misconduct – it is important to understand that they must receive pay for any annual leave they are entitled to in the current leave year but have not taken. Any such payment will be treated as earnings for PAYE tax and NIC purposes, however exactly how you deal with this will depend on the timing of the payment – e.g. whether it is before or after the P45 has been issued, as described above.

Statutory redundancy pay

Sometimes, when circumstances change, you may no longer need your employee. If your needs change and either the type of work carried out by your employee is no longer needed or they are no longer required because you move premises for example, there may be a redundancy situation.

Redundancy has a very specific definition in law. You cannot make someone redundant just because you don’t get on with them. If it is a true redundancy you would not immediately recruit a direct replacement for the employee.

Further information on redundancy can be found on GOV.UK and ACAS have produced guidance on redundancy handling that is available from their website.

Employees with two years' or more continuous service are entitled to statutory redundancy pay and redundant employees have the right to reasonable paid time off to look for other work. Statutory redundancy pay is not taxable/NICable and should not be included on a person's P45. As such, you can pay it outside of your normal payroll processes, although you should give the worker a letter explaining what it is, in case they need a record of the income for other reasons – e.g. for benefits purposes. Keep a copy of the letter for your own records.

If you believe you need to make your employee redundant you should seek advice from an expert.