PAYE if your business closes or changes

There are a number of potential changes to your business that have implications for your operation of PAYE. This guide sets out what you must do in some of the most common cases such as ceasing to employ anyone, closing or merging your business or selling the business on to someone else.

On this page:

If your business closes down

If you close your business down there are a number of important tasks that you need to carry out:

  • Where the date your business ceased is on or after 6 April 2013 HM Revenue & Customs (HMRC) will update their records from the details you provide on your final real time submission. If the date your business ceased was on or before 5 April 2013 you must tell HMRC so that they can update their records. Do this by contacting HMRC's Employer Helpline - there's a link later in this guide.
  • Pay HMRC any PAYE tax and National Insurance contributions (NICs) owing within 14 days (17 days if you pay by electronic means) of the last tax month (or quarter if you pay quarterly) in which your business was still open.
  • When running the final payroll complete, the 'Final submission because scheme ceased' and 'date scheme ceased' boxes on your Full Payment Submission (FPS) for the pay period and enter a leaving date on each employee's payroll record. Where you are submitting an Employer Payment Summary (EPS) as your final submission you must complete the 'Final submission because scheme ceased' and 'date scheme ceased' boxes on the EPS instead.
  • Send your expenses and benefits returns (forms P11D, P11D(b) and P9D) as soon as possible to avoid any delays in finalising your affairs.
  • Give your employees a form P45 either on their final day of employment or, if this isn't practicable, without undue delay.
  • Enter the date you cease to employ the employee as the date of leaving on the P45, in accordance with general employment law.

It's important to make sure you let all the relevant parts of HMRC know that your business has closed down. This will ensure you won't underpay or overpay any tax and will prevent HMRC from sending you demands or bills that you aren't liable for. You can read more about who to contact and what to do in the guide 'Closing or selling a business' - follow the link below.

Sending payroll information to HMRC

Closing or selling a business

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Ceasing employment - temporary

If you face a temporary gap in employing anyone (meaning you will owe no PAYE tax or NICs), the steps you must take depend on the length of the gap.

There are numerous possible reasons for this kind of gap in PAYE liabilities for example, seasonal businesses often employ no one during the quiet months of the year.

Form P45

You must give your employees a form P45 on the day on which the employment ceases. Where you intend to keep your employees on your payroll during this temporary period you do not need to give them a P45. However, if they are not going to be paid for a period of three months or more, you must set the irregular payment pattern indicator on the final FPS before the start of the period in which they won't be paid.

Gaps of less than a year

If you expect that your gap in liabilities will be for less than a whole tax year, your PAYE scheme will continue to operate. However, because HMRC expects regular payments from every operational PAYE scheme for each tax month, you must submit an EPS to indicate that you have not had or will not have payments to make for a particular period or periods. You can do this by using:

  • No payment dates 'to and from' to report dates in the past. The span of the dates has to be for a minimum of one complete tax month up to a maximum of 12 complete tax months.
  • Period of inactivity dates 'to and from' to report dates in the future. The span of the dates has to be for a minimum of one complete tax month up to a maximum of six complete tax months.

Gaps of a year or longer

If you don't intend to employ anyone for at least one whole tax year, you must:

  • enter a date of leaving on each of your employee's payroll records
  • submit an EPS with the 'Final submission because scheme ceased' and 'date scheme ceased' boxes completed so HMRC can close down your PAYE scheme

If you start to employ someone either in the tax year the PAYE scheme was closed or the following tax year you can send an FPS with the Employer PAYE reference of the closed scheme so that it can be reopened. If you start to employ someone after this period you will need to contact the Employer Helpline or write to HMRC so that a new PAYE scheme can be set up.

HMRC's Employer Helpline

Sending payroll information to HMRC

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Change of ownership - merger or succession

If your business is subject to a change of ownership then a merger or succession may apply:

  • A merger is where two or more PAYE schemes are brought together for the same legal entity. A business merger of companies does not always result in a PAYE scheme merger.
  • A succession is when the ownership of a business changes from one legal entity to another and the new owner takes responsibility for the pay records of the old employer.

In both cases you will need to contact HMRC's Employer Helpline. They will check the details with you and confirm whether a merger or succession applies. You may need a new reference which will be supplied by HMRC, or you will be told which employer reference to use.

HMRC will note your employer record and you must take the following actions.

For mergers:

  • Transfer the payroll records to the new employer reference.
  • Under the old employer reference send in an FPS with leaving details, including the year to date pay and tax figures. You do not need to prepare forms P45 for employees affected by this change, although you will need to ensure they are provided details of their total pay and deductions up to the date the scheme merged.
  • Under the new employer reference send an FPS restarting the year to date figures from zero.
  • Include the full starting details for the each employee on the FPS for the new reference, use:
    • the start date for the new payroll
    • starter declaration C for codes 0T, BR or codes starting with a D prefix
    • starter declaration B for any other code
  • On your payroll you must:
    • work out and deduct PAYE tax and NICs from any payments you make to the transferred employees from the date the scheme merged
    • use the pay and tax details from the old employer reference if you're operating a cumulative tax code
  • If you are also sending expenses and benefits information (forms P11D, P11D(b) and P9D) at the end of the tax year, these must contain the total information to be reported for both employer references.

Note: The last FPS from the old employer reference must be submitted before the first FPS for the new employer reference. If you are unable to do this you will need to contact HMRC's Employer Helpline.

HMRC's Employer Helpline

For successions, where a new reference is required:

  • Transfer the payroll records to the new employer reference.
  • Under the old employer reference send in an FPS with leaving details, including the year to date pay and tax figures. You do not need to prepare forms P45 for employees affected by this change, although you will need to ensure they are provided details of their total pay and deductions up to the date the scheme succeeded.
  • Under the new employer reference send an FPS restarting the year to date figures from zero.
  • Include the full starting details for the each employee on the FPS for the new reference, use:
    • the start date for the new payroll
    • starter declaration C for codes 0T, BR or codes starting with a D prefix
    • starter declaration B for any other code
  • On your payroll you must:
    • work out and deduct PAYE tax and NICs from any payments you make to the transferred employees from the date the scheme succeeded
    • use the pay and tax details from the old employer reference if you're operating a cumulative tax code
  • If you are also sending expenses and benefits information (forms P11D, P11D(b) and P9D) at the end of the tax year, these must contain the total information to be reported for both employer references.

Note: The last FPS from the old employer reference must be submitted before the first FPS for the new employer reference. If you are unable to do this you will need to contact HMRC's Employer Helpline.

HMRC's Employer Helpline

For successions where a new reference is not required

Continue to operate PAYE and report payroll information under the existing employer reference.

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Moving employees from one payroll to another

Where some, but not all of your employees or pension recipients transfer from one employer payroll to another in your organisation, you will need to take the following steps depending on whether you are using different employer references to operate these payrolls.

Employees moving to a new payroll under the same employer reference

Continue to operate PAYE and report payroll information under the same employer reference.

For employees moving to a new payroll under a different employer reference:

  • Transfer the payroll records to the new employer reference.
  • Under the old employer reference send in an FPS with leaving details, including the year to date pay and tax figures. You do not need to prepare forms P45 for employees affected by this change, although you will need to ensure they are provided details of their total pay and deductions up to the date they moved payrolls.  
  • Under the new employer reference send an FPS restarting the year to date figures from zero.
  • Include the full starting details for the each employee on the FPS for the new reference, use:
    • the start date for the new payroll
    • starter declaration C for codes 0T, BR or codes starting with a D prefix
    • starter declaration B for any other code
  • On your payroll you must:
    • work out and deduct PAYE tax and NICs from any payments you make to the transferred employees from the date they moved payrolls
    • use the pay and tax details from the old employer reference if you're operating a cumulative tax code
  • If you are also sending expenses and benefits information (forms P11D, P11D(b) and P9D) at the end of the tax year, these must contain the total information to be reported for both employer references.

Note: The last FPS from the old employer reference must be submitted before the first FPS for the new employer reference. If you are unable to do this you will need to contact HMRC's Employer Helpline - there's a link at the end of this section.

If you are a pension provider transferring pension recipients from one payroll to another you can find out what to do by following the link below.

Pension and annuity payments - PAYE in special situations

HMRC's Employer Helpline

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