In this section:

When an employee leaves or retires

This guide explains the PAYE procedures you'll need to follow, and the forms you'll need to fill in, if one of your employees leaves your business or retires.

On this page:

When an employee leaves
When an employee retires
PAYE tax and NICs on payments to an employee who's leaving
Help and advice
More useful links

When an employee leaves

When an employee leaves, you must update the form P11 or equivalent payroll record you’ve been maintaining for them and complete and file a form P45.

Updating the employee's P11 or equivalent record

If you’ve had to keep a form P11 or equivalent record for the employee who’s leaving, the only change you need to make is to enter the employee's leaving date.

If you use the P11 Calculator on the Employer CD-ROM, enter the employee's leaving date by updating their record in the employee database.
If you use commercial payroll software, the steps to take may differ from package to package – check the instructions or ask your software provider.
If you’re using a paper form P11, you should enter the leaving date in Box J.

Completing a P45 for the employee

You must complete a form P45 for any leaving employee for whom you‘ve had to keep a form P11. Give parts 1A, 2 and 3 to the leaving employee and submit part 1 to HM Revenue & Customs (HMRC).

The easiest way to send form P45 Part 1 to HMRC is online. You can then print out parts 1A, 2 and 3 to give to the leaving employee.

If you have 50 or more employees you must file form P45 Part 1 online. And under government proposals all employers, regardless of the number of employees, must file P45 Part 1 online from 6 April 2011.

The information required on form P45

The basic information you need to enter includes:

your Employer PAYE reference
the leaving employee’s name, address, National Insurance number, date of birth, gender and works/payroll number
the employee’s date of leaving and their tax code
an indication of whether you've been making Student Loan Deductions from the employee

You'll also need to include details of the employee’s earnings and tax deductions.

If the employee is on a cumulative tax code, then you’ll need to provide both:

their overall pay and tax totals for the tax year so far, including from any previous employments during the year
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, then provide their tax and pay figures relating only to their work with you in the current tax year.

More about filing form P45 online

Download an example of a completed paper form P45 (PDF 70K)

Top

When an employee retires

The PAYE procedures that you need to follow when someone retires depend on whether or not you'll be paying them a pension.

If you won't be paying the employee a pension

If an employee retires and you're not going to be paying them a pension, you'll need to fill in a P45. Do this as you would for any employee who's leaving (see above).

If you will be paying the employee a pension

You don’t need to complete a P45 if you're going to be paying a pension to a retiring employee. As you'll carry on paying the employee, HMRC doesn’t treat them as having left your payroll.

However, you will still have to contact HMRC to provide the following information within 14 days of an employee’s retirement:

the employee's name, address and National Insurance number
their retirement date
their total pay from you in the current tax year up to their retirement date
the tax you've deducted from their pay for the tax year so far
the pension that you'll be paying them each week or month

This information can be submitted to HMRC using form P46 (Pen) or you can use an alternative of your own. A copy must be provided to the employee.

If you have 50 or more employees you must file form P46 (Pen) online. Under government proposals all employers, regardless of the number of employees, will have to file P46 (Pen) online from 6 April 2011.

PAYE and pension payments – find out more

More about filing form P46 (Pen) online

Top

PAYE tax and NICs on payments to an employee who's leaving

Payments to an employee who is leaving or retiring are treated differently depending on whether they count as standard payments (such as salary, wages, holiday pay and bonuses) or one-off payments (including redundancy payments and retirement lump-sums).

PAYE tax on standard payments

In most cases you must work out, record and deduct PAYE tax as usual on any standard payments that you make to your employees when, or after, they leave your business.

However, if you have already completed a form P45 for the employee and you make a further payment to them, then you must take the following steps:

deduct PAYE tax at the basic rate on a 'non-cumulative' basis
use tax code ‘BR’, and enter this as the amended code on the employee’s form P11 or equivalent payroll record
enter the payment and the PAYE tax you've deducted on the employee’s P11 or equivalent record
give the employee a letter showing the date of the payment, the gross amount, and the PAYE tax you deducted

NICs on standard payments

If you make a final standard payment to an employee at the time they leave your business, you must work out, record and deduct NICs in the normal way.

If you make the payment after the employee leaves, then the NICs treatment depends on what the payment includes:

if the payment is wages or salary, you should work out the NICs due using the normal earnings period and National Insurance category letter, and the contribution rates and limits current at the time of payment
if the payment is an irregular payment (such as an unexpected bonus or accrued holiday pay) you should use the usual rates, limits and National Insurance category letter, but with a weekly earnings period

You'll find more detailed information and examples in the HMRC publication 'Employer Further Guide to PAYE and NICs (CWG2) - use the link at the bottom of this guide.

PAYE tax and NICs on one-off payments

Different types of one-off payments to employees leaving your business are treated differently, and separate rules apply for working out the PAYE tax and NICs due:

for PAYE tax purposes, some types of leaving payment are tax-free, some taxable in full, and some taxable only above £30,000
for NICs purposes, one-off leaving payments are either wholly taxable or wholly tax-free

For a list of the PAYE tax and NICs rules for the most common types of one-off leaving payments, (such as redundancy and payments in lieu of notice), see the HMRC publication 'Employer Further Guide to PAYE and NICs' (CWG2) - use the link below.

Top

Help and advice

You can find quick answers to the most commonly asked questions about completing form P45 by following the link below.

Quick answers to common questions on completing form P45

If you still can't find the information you need, you can ask a question through our email query service.

Send an email query about completing form P45

Alternatively you can get advice from HMRC's Employer Helpline on Tel 08457 143 143, open from 8.00 am to 8.00 pm, Monday to Friday and from 8.00 am to 5.00 pm, Saturday and Sunday, except Christmas Day, Boxing Day and New Year's Day.

Top