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Payroll When an Employee Leaves (HMRC)

Employers need to deduct and pay the correct amount of tax and National Insurance (and notify HMRC) if any of their employees leave or retire.

Check what you need to do when an employee leaves a company (or retires), how to update payroll, and provide your ex-employee with a P45.

Employers Checklist When Employees Leave

Put the leaving date on their payroll record and make the normal deductions on your next Full Payment Submission (FPS) if an employee leaves.

The process differs if you will be paying your retiring employee a company pension (see further details below).

You must also give a P45 to the employee from your payroll software (or get P45, P60, and other forms from HMRC).

Ideally, you should send a report to HMRC about an employee leaving in the same month that they left for the current tax year.

But, if you need to change something in the next FPS, you would also need to show the leaving date, and:

What if your employee left in the previous tax year? If so, you should send (either):

You should update your payroll records with the correct date if you entered the wrong leaving date in your FPS. But, there is no need to report the amendment in your next FPS (to avoid creating a duplicate record).

What if you reported an employee's leaving date to HMRC in your FPS and then they continue working for you? If this happens, you should:

Important: Another section provides further guidance on correcting mistakes with pay and deductions (e.g. if you need to correct or adjust previously reported payroll figures).

Paying a Company Pension to a Retiring Employee

Follow these steps if you are still making company pension payments to any of your ex-employees who will retire from the workplace:

You should be deducting tax in the usual way. But, you should not be deducting National Insurance from pension payments if yours is one of the registered schemes with HM Revenue and Customs.

Paying Statutory Maternity or Paternity Pay

As an employer, you must continue to pay any statutory maternity, paternity, or adoption pay until the statutory leave of your employee ends. This rule still applies even if they are no longer working for you.

When paying statutory maternity, paternity or adoption pay, you should (either):

Note: Different tax codes apply for Income Tax in Scotland (e.g. SOT) and Income Tax in Wales (e.g. COT).

Paying an Employee after P45

You may need to pay an employee after giving them a P45 (e.g. they already left your employment). An example could be taxable redundancy pay (above the current threshold). If so:

Important: If you are paying an employee after giving them a P45, they should only get one from you. Another section contains more information on what to do when an employee dies and how to report it.

What to Do if Your Employee Leaves or Retires