New employees, changes and special situations
In this section:
- Taking on a new employee
- New employee: using the right tax code
- When an employee leaves or retires
- Employee events and special situations
When an employee leaves or retires
This guide explains the 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 complete two forms – form P11 Deductions Working Sheet and form P45 Details of Employee Leaving Work.
Updating an employee's P11
The only change you need to make here is to enter the employee's leaving date. This only applies to employees for whom you keep you a form P11 – it’s only required when earnings are above the National Insurance contributions (NICs) Lower Earnings Limit (LEL).
If you use the integrated P11 Calculator on our Employer CD-Rom, you can update the employee’s leaving date on their record in the employee database. If you are using a paper form P11, you should enter the date in Box 1.
Completing a P45 for the employee
You must complete a P45 for any leaving employee for whom you are required to keep a form P11. Give parts 1A, 2 and 3 to the leaving employee and submit part 1 to us.
The easiest way to complete and submit form P45 is online. You can do this using our free 'Online Return and Forms - PAYE (Pay As You Earn)' service, and many commercial payroll software packages also have an online filing function.
If you have 50 or more employees you must file form P45 online from 6 April 2009. If you have fewer than 50 employees you must send it online from 6 April 2011.
The information required on form P45
The basic information you need to enter on the form includes:
- your Employer PAYE reference
- the leaving employee’s name, address, National Insurance number 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 use item 7 on the form to fill in their totals for the tax year so far (including pay and tax from any previous employments they may have had during the tax year)
- if the employee is on a week 1 or month 1 code, then do not fill in item 7 – instead use item 8 to fill in the tax and pay figures relating to their work with you in the current tax year
- you should also fill in item 8 for employee’s on a cumulative tax code if their pay and tax figures relating to their work for you are different from their year-to-date figures in item 7
Download an example of a completed form P45 (PDF 109K)
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, we don’t treat them as having left your payroll.
However, you will still have to contact us 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 us using form P160 (which will be replaced by form P46 (Pen) from April 2009), or you can use an alternative of your own. A copy must be provided to the employee.
The same deadlines for online filing apply to form P46 Pen as to form P45. If you have 50 or more employees you must file online from 6 April 2009. If you have fewer than 50 employees you must file online from 6 April 2011.
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 given the employee a form P45 and then you make a 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 P11
- enter the payment and the PAYE tax you've deducted on the P11
- 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 NI 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 NI category letter, but with a weekly earnings period
You’ll find more detailed information and examples in our 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 our publication 'Employer Further Guide to PAYE and NICS' (CWG2) - use the link below.
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 our 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.
More useful links
Download 'Employer Further Guide to PAYE and NICs' (CWG2) (PDF 462K)
