What to Do When an Employee Leaves

When an employee leaves your business, you have important legal obligations as an employer. You must notify HMRC of their departure, calculate their final pay correctly, and issue them with a P45 form. Getting these steps right ensures your former employee can start a new job smoothly and helps you avoid penalties.

Notifying HMRC through your Full Payment Submission

The way you report an employee's departure depends on when they're leaving:

If they're leaving in the current tax year (before the next 6 April) and you won't be paying them a pension, add their leaving date to their payroll record when you process their final payment. Then make deductions as normal when you send your next Full Payment Submission (FPS) – this is the report you send to HMRC each time you pay employees.

If their final payment is before 6 April but they're leaving on or after 6 April (in the next tax year), don't include their leaving date in the same FPS as their final payment. Instead, include them in your first FPS of the new tax year with:

• Their leaving date
• '0' in the 'Pay and tax in this period' field
• '0' in the 'Year to date' field
• A 'Payment date' matching the FPS payment date for that period

Issuing a P45

You must give your employee a P45 when they leave. This form shows their total pay and tax deductions for the year so far, which they'll need to give to their next employer or to claim benefits.

If you're exempt from filing your payroll online, you can order paper copies of P45 forms from HMRC.

If you forgot to report someone leaving

If an employee left in the current tax year but you didn't report it in the month they left, include them in your next FPS with:

• Their leaving date
• '0' in the 'Pay and tax in this period' field
• The last reported figures for pay, tax, National Insurance and other payroll information in the 'Year to date' field
• The 'Payment date' shown as either the current FPS payment date or the last date the employee was paid
• Add 'H' (correcting an earlier payroll report) as your reason for reporting late if the 'Payment date' you entered isn't the current FPS payment date

If the employee left in the 2025/26 tax year, send an FPS for the previous year showing the correct year to date information, if your software supports it.

Correcting a wrong leaving date

If you entered the wrong leaving date in your FPS, update your payroll records with the correct date. Don't report the amendment in your next FPS as this may create a duplicate record for the employee.

If you've already reported a leaving date but the employee continues working for you:

• Use the same payroll ID if you haven't given them a P45 yet – simply remove the leaving date and don't add a new start date
• Give them a new payroll ID if you've already given them a P45

Paying a company pension to a former employee

If you're paying a pension to someone who has retired from your company, the process is different:

• Don't include their leaving details in your FPS – they're still on your payroll
• Use a different payroll ID for the pension payments, showing on the FPS that the payroll ID has changed and providing the previous payroll ID
• Give the full annual amount of the pension
• Use the employee's existing tax code on a 'week 1' or 'month 1' basis until you receive a new code from HMRC, or on a cumulative basis if the first pension payment is in the new tax year
• Put 'Yes' in the 'Occupational pension indicator' field for each pension payment
• Give them a retirement statement showing their employment details up to their retirement date

Don't deduct National Insurance from pension payments if your scheme is registered with HMRC. You should deduct tax in the normal way.

Continuing statutory maternity, paternity or adoption pay

You must continue paying statutory maternity, paternity or adoption pay until the end of an employee's statutory leave, even if they stop working for you. Agree one of the following with the employee:

• Give them a P45 when they stop working, then deduct tax on the remaining statutory payments using code 0T on a 'week 1' or 'month 1' basis (use code S0T if they're taxed at the Scottish rate or C0T if they're taxed at the Welsh rate)
• Use their usual tax code for the statutory payments and give them a P45 after you've made the final payment, recording the final payment date as their leaving date

Paying someone after you've issued their P45

Sometimes you need to make a payment after an employee has left – for example, accrued holiday pay, a bonus, or a taxable redundancy payment over £30,000. In this case:

• Use tax code 0T on a 'week 1' or 'month 1' basis (use code S0T if they're taxed at the Scottish rate or C0T if they're taxed at the Welsh rate)
• Deduct National Insurance (unless it's a redundancy payment) and any student loan repayments as normal – but if it's an 'irregular' payment like accrued holiday pay or an unexpected bonus, treat it as a weekly payment
• Report the payment and deductions in your next FPS, using the employee's original 'Date of leaving' and payroll ID, 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

If you're making the payment in the next tax year, it should be the only amount in the 'Year to date' field.

You must not give the employee another P45.

Sources

• What to do when an employee leaves
• Tell HMRC when an employee leaves if you use Basic PAYE Tools

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.