P45 (Leaving Employee Tax Form)

There is a piece of paper – or more accurately these days, a digital record – that every leaving employee in the United Kingdom is legally entitled to receive. It travels with them from job to job. It tells their next employer how much they have earned and how much tax they have paid. It prevents them from being overtaxed on their first payslip at a new workplace. And it is the employer’s legal obligation to produce it correctly and on time, every single time someone leaves.

The P45 is not glamorous payroll compliance. It does not involve complex calculations or multi-branch contribution structures. What it involves is discipline – doing the right thing, at the right time, in the right format, without exception. And in an era where HMRC’s Real Time Information system cross-references every payroll submission, gaps in P45 issuance are increasingly visible to the tax authority in ways they simply were not a decade ago.

This guide covers everything about the P45 – what it contains, when it must be issued, how it interacts with RTI, what happens at the receiving employer’s end, and what goes wrong when the process breaks down.

Mercans provides fully managed UK payroll services, including compliant P45 generation, RTI leaver submissions, and new starter processing for employers across all sectors and sizes.

What Is a P45?

The P45 is an HMRC-prescribed form that an employer must provide to an employee when their employment ends – for any reason. Resignation, redundancy, dismissal, retirement, death, fixed-term contract expiry, or any other form of departure all trigger the P45 obligation. There are no exceptions based on the reason for leaving, the length of service, or the employee’s earnings level.

Formally titled “Details of employee leaving work”, the P45 records the employee’s tax information up to the point of leaving – their total pay to date in the tax year, total tax deducted to date, their tax code, and their National Insurance number. This information allows the next employer – or HMRC directly, if the employee moves into self-employment or claims benefits – to continue the employee’s tax record without interruption or duplication.

The P45 has existed in various forms since the 1940s. Its current format and the processes surrounding it have been shaped significantly by the introduction of Real Time Information (RTI) reporting in 2013, which changed how leaver information is submitted to HMRC and how P45 data flows through the payroll system.

The Three Parts of a P45

The P45 is structured in three parts – each serving a distinct purpose and going to a different recipient:

Part 1 – HMRC Copy

Part 1 is the employer’s submission to HMRC. Under RTI, this is no longer a physical document sent to HMRC – the leaver information is transmitted electronically through the employer’s Full Payment Submission (FPS) or Employer Payment Summary (EPS) at the point of the final payroll run. The Part 1 data is embedded in the RTI submission rather than filed separately.

What Part 1 effectively represents in the RTI world is the employer’s obligation to report the leaver event to HMRC in the payroll submission covering the employee’s final pay period. HMRC then updates the employee’s tax record centrally, making the information available to the next employer when they query HMRC’s systems.

Part 1A – Employee’s Copy

Part 1A is the employee’s personal copy of the P45. The employer must provide this to the employee on or before their last day of employment – or as close to it as is operationally possible. It is the employee’s record of their earnings and tax deductions for the portion of the tax year they spent with that employer.

The employee should keep Part 1A safely. They will need it if they:

• Start a new job and their new employer asks to see it
• Make a tax reclaim from HMRC
• Apply for certain government benefits where previous earnings must be verified
• Are self-assessing and need to reconcile their PAYE record

Parts 2 and 3 – New Employer Copies

Parts 2 and 3 are provided by the leaving employee to their new employer. When a new employee arrives with a P45, the new employer uses Parts 2 and 3 to set up the new employee’s payroll correctly:

• Part 2 is retained by the new employer as their record
• Part 3 is completed by the new employer with their own details and – under the pre-RTI system – was sent to HMRC; under RTI, the new employer instead submits the P45 information through their own FPS when processing the new starter’s first pay

In practice, the physical three-part structure of the old paper P45 has been largely replaced by digital equivalents in most payroll systems – but the conceptual distinction between what the employee receives, what the new employer receives, and what is reported to HMRC remains the same.

What Information the P45 Contains

Every P45 must include the following information, all of which is required for the next employer or HMRC to correctly continue the employee’s tax record:

• Employee’s full name
• National Insurance number
• Date of leaving – the actual last day of employment, not the last day worked or the last day of notice
• Tax code at the point of leaving – including any Week 1 or Month 1 basis indicator if applicable
• PAYE reference – the employer’s unique PAYE scheme reference number
• Total pay in the tax year to date – the cumulative gross pay the employee received from this employer since 6 April, including the final payment
• Total tax deducted in the tax year to date – the cumulative income tax deducted since 6 April, including the deduction from the final payment
• Student loan deduction indicator – whether student loan deductions were being made, and whether they should continue with the next employer

The accuracy of the total pay to date and total tax to date figures is critical. These cumulative figures are what the new employer uses to calculate the correct tax deduction in the first pay period. An error in either figure cascades through the new employer’s payroll and ultimately affects the employee’s year-end tax position.

When Must the P45 Be Issued – The Timing Obligation

The legal requirement is clear: the employer must provide the P45 on or before the employee’s last day of employment. In practice, HMRC acknowledges that payroll processing timelines sometimes make this difficult – particularly for employees who leave mid-pay-period – and the regulatory position allows for the P45 to be issued as promptly as possible after the final pay has been processed.

What is not acceptable:

• Withholding the P45 pending return of company property
• Delaying the P45 until a settlement agreement is signed
• Refusing to issue a P45 because of a dispute with the employee
• Issuing a P45 with incorrect figures to pressure an employee in a dispute

The P45 is a legal right, not a bargaining chip. Employers who withhold it or delay it expose themselves to complaints to HMRC and potentially to employment tribunal claims where the delay has caused the employee financial harm through incorrect emergency tax coding at their next employer.

The RTI dimension adds a further timing discipline: the leaver must be reported to HMRC through the FPS for the pay period in which their final payment is made. Delays in FPS submission therefore simultaneously delay HMRC’s record update and create a gap that can result in the employee being put on an emergency tax code by their next employer before HMRC’s systems have been updated.

The PAYE Tax Code on the P45 – Getting It Right

The tax code recorded on the P45 is the code that was in operation at the point of the employee’s departure. Common tax codes employers encounter at the leaver stage include:

Standard codes: 1257L is the most common code for the 2024/25 tax year, reflecting the standard personal allowance. An employee leaving mid-year with this code gives their next employer the basis to continue the cumulative PAYE calculation correctly.

Week 1 / Month 1 basis: If the P45 shows a W1 or M1 indicator alongside the tax code, the new employer applies the code on a non-cumulative basis – taxing each pay period in isolation rather than taking into account total pay to date. This prevents the cumulative figures from a previous employment creating an anomalous tax outcome at the new employer.

Emergency tax codes: If the employee was on an emergency code at the point of leaving – because they previously had no P45 or had not submitted a P46/starter checklist – the emergency code appears on the P45. The new employer should request a correct code from HMRC at the earliest opportunity.

Restricted or negative codes: Less common but important to handle correctly – codes such as K codes (where the employee has a tax liability that exceeds their personal allowance) require specific treatment by the new employer.

Interaction With RTI – The Leaver Submission Process

Under RTI, the P45 process is embedded in the employer’s regular payroll submission cycle rather than being a separate filing event. The sequence for a leaving employee is:

Step 1 – Process the final pay

Calculate the employee’s final wages – including any outstanding holiday pay, notice pay, termination payments above the £30,000 exemption, bonuses, and any other amounts due. Apply the correct PAYE and NIC treatment to each component.

Step 2 – Record the leaving date in the payroll system

The leaving date must be entered before the FPS is generated. The FPS includes a leaver indicator and the leaving date – without this, HMRC does not know the employment has ended.

Step 3 – Submit the FPS

The FPS for the pay period covering the final payment includes the employee’s leaver information – cumulative pay, cumulative tax, leaving date, and tax code. This is effectively the electronic Part 1 submission.

Step 4 – Issue the P45 to the employee

The payroll system generates the P45 document – Parts 1A, 2, and 3 – for issuance to the employee. In many modern payroll systems this is an electronic document provided through a self-service portal or emailed securely to the employee.

Step 5 – Cease payroll processing for the employee

Once the leaver is recorded and the FPS submitted, the employee should be removed from the active payroll to prevent inadvertent continued processing in future pay periods.

What Happens at the New Employer – The Starter Checklist and P45 Interaction

When a new employee arrives, they may or may not have a P45. How the new employer handles each scenario has direct consequences for how much tax is withheld from the first payslip.

New Employee With a P45

The new employer takes the P45 details – tax code, cumulative pay to date, cumulative tax to date – and enters them into the payroll system for the new employee. The payroll system uses the cumulative figures to calculate the correct tax deduction on the first pay, taking into account total earnings and tax paid across both employments in the tax year. The new employer submits this information to HMRC through their own FPS on or before the first payday.

If the P45 shows a W1/M1 basis code, the cumulative figures are noted but the code is applied non-cumulatively.

New Employee Without a P45

If the new employee cannot provide a P45 – because they have lost it, because the previous employer has not yet issued it, because they are starting their first ever job, or because they are returning from self-employment or a period outside the workforce – the new employer asks them to complete a Starter Checklist (which replaced the old P46 form).

The Starter Checklist asks three questions about the employee’s circumstances:

• Statement A: This is their first job since last 6 April and they have not been receiving taxable benefits, student loan repayments, or occupational/personal pensions
• Statement B: This is their only job, but since last 6 April they have had another job or received taxable benefits
• Statement C: They have another job or receive a pension

The answer determines the tax code applied on a temporary basis – 1257L cumulative for Statement A, 1257L week 1/month 1 for Statement B, and the BR (basic rate) code for Statement C. When HMRC updates the employee’s record following the FPS submission, a correct tax code is issued and the employer updates accordingly.

Termination Payments and the P45 – A Specific Complication

Termination payments add a layer of complexity to the P45 process because they are not always processed in the same pay period as the employee’s final regular wages, and some components have specific tax treatment that affects the cumulative figures on the P45.

The £30,000 exemption: The first £30,000 of a genuine ex-gratia termination payment is exempt from income tax. Anything above this is taxable through PAYE. The taxable element must be included in the P45’s total pay to date figure.

Payments in lieu of notice (PILON): Since April 2018, all contractual and non-contractual PILONs are subject to income tax and NIC. The PILON amount must be included in the P45 figures.

Restrictive covenant payments: Fully taxable and must be included.

Garden leave: The employee remains employed during garden leave – the P45 is issued only when employment actually ends, not when garden leave begins.

Where a termination payment is agreed and paid after the employee has already been issued a P45 – for example, where a settlement agreement is finalised weeks after the departure date – the employer must process the additional payment through payroll using the employee’s tax code at the time of departure, typically on a week 1/month 1 basis, and report it to HMRC via FPS. A revised P45 is not issued in this situation – the employee receives a payslip for the additional payment, and HMRC is updated through the FPS.

Common P45 Errors and Their Consequences

The P45 process is operationally straightforward – which makes the errors that do occur largely avoidable with proper process discipline:

Incorrect leaving date: A leaving date error – even by one day – can affect the NIC calculation for the final pay period and creates a mismatch between the employer’s records, the employee’s P45, and HMRC’s system. Always use the actual contractual end date of employment.

Missing cumulative figures: Omitting the year-to-date pay or tax figures, or including only the final payment rather than the cumulative total, renders the P45 useless to the next employer and requires the employee to be put on an emergency code.

Incorrect tax code: Issuing a P45 with a stale or incorrect tax code – particularly where HMRC issued an updated code during the pay period of departure – causes the new employer to apply the wrong code from the outset.

Failure to include student loan indicator: If the employee had an active student loan deduction plan, the P45 must indicate this so the new employer continues the deductions. An omitted indicator means the employee’s loan repayments pause unnecessarily, extending their overall repayment period.

Delayed issuance: Any delay beyond the last day of employment risks the employee being placed on an emergency tax code by their new employer – an outcome that typically results in significant over-taxation until HMRC’s records are updated, creating an immediate employee relations problem.

Processing a leaver without updating the FPS: If the leaver is not correctly flagged in the FPS, HMRC continues to expect payroll submissions for that employee. Unexplained gaps in payroll data for an employee HMRC believes is still employed can trigger compliance queries.

Death in Service – P45 Obligations

When an employee dies in service, the P45 obligation applies – but with specific modifications. The employer issues a P45 using the date of death as the leaving date. The form is provided to the employee’s personal representative (executor or administrator of the estate) rather than to the employee directly. Any salary payments made after death are processed through payroll in the normal way and reported via FPS, with the deceased employee’s NI number and tax code used until HMRC issues alternative instructions.

Handling in-service deaths with care and accuracy – both the human dimension and the payroll compliance dimension – is a mark of a professionally managed payroll operation.

How Mercans Supports P45 Compliance in UK Payroll

P45 compliance sits within a broader leaver management process that, if properly designed, operates smoothly and automatically. The failure points almost always arise from gaps between HR notification of a departure and payroll processing – a leaving date not communicated promptly, a final payment processed in the wrong period, or a payroll system not updated before the FPS runs.

Mercans’ UK payroll services build leaver management discipline into every client’s payroll process:

• Structured leaver notification workflow ensuring HR departures are reflected in payroll before the FPS deadline
• Correct final pay calculation including PILON, holiday pay, termination payments, and redundancy where applicable
• Accurate P45 generation with correct leaving date, tax code, cumulative pay, and cumulative tax figures
• Student loan indicator correctly recorded and communicated to the employee
• RTI leaver flag included in the FPS for the correct pay period
• Electronic P45 issuance to the employee on or before the last day of employment
• New starter P45 processing – correctly entering incoming P45 data and submitting via FPS on the first payday
• Starter Checklist processing for employees arriving without a P45

For multinational employers managing a UK workforce alongside payroll operations in other markets, Mercans’ global payroll platform ensures that UK leaver and starter processes meet HMRC standards without exception, within a consolidated international payroll management framework. Learn more at mercans.com.

Frequently Asked Questions

Can an employer withhold a P45 if the employee owes money or has not returned company property?

No – an employer has no legal right to withhold a P45 for any reason, including outstanding debts, unreturned equipment, or unresolved disputes. The P45 is the employee’s statutory entitlement and must be issued promptly upon termination regardless of the circumstances of the departure or any outstanding matters between the parties. Withholding a P45 can constitute an unlawful deduction in the broader sense of denying a statutory entitlement, may result in a complaint to HMRC, and can form part of an employment tribunal claim if the delay causes the employee financial harm through incorrect tax coding at their next employer. Recovery of company property and resolution of financial disputes must be pursued through separate legal channels – they have no bearing on the P45 obligation.

What happens if an employee loses their P45 before starting their new job?

A replacement P45 cannot be issued by the previous employer – once a P45 has been generated and the leaver reported to HMRC via RTI, the previous employer’s obligation is discharged. The employee does not have a legal right to demand a duplicate. In practice, the employee should inform their new employer that they do not have a P45 and complete a Starter Checklist instead. HMRC will update the new employer’s payroll records once the FPS containing the new starter information is processed, and the correct tax code will be issued in due course. Any over-taxation during the interim period – while the emergency or default code applies – is typically resolved through the employee’s year-end tax reconciliation or by contacting HMRC directly to request an in-year tax code update.

How is a P45 handled for an employee on a zero-hours contract who simply stops being offered shifts?

Zero-hours contract employment presents a genuine ambiguity for P45 purposes. An employment relationship under a zero-hours contract technically continues as long as neither party has formally ended it – the absence of shifts does not automatically constitute a termination. The P45 obligation arises when the employment relationship ends, which requires either the employer formally terminating the contract or the employee resigning. If an employee on a zero-hours contract simply drifts away – stops responding to shift offers, takes employment elsewhere – without any formal termination, the P45 position is unclear. Best practice is for the employer to establish a clear policy for zero-hours leavers – issuing a formal termination notification after a defined period of inactivity and then processing the P45 on that basis. This avoids the employee being left in limbo on the employer’s payroll records, creates clarity for HMRC’s RTI data, and ensures the employee can provide a P45 to their next employer if needed.

Does the P45 process differ for employees leaving under a settlement agreement with a non-disclosure clause?

The existence of a settlement agreement and any associated non-disclosure obligations does not change the P45 requirements. The employer must still issue the P45 with accurate figures – the actual leaving date, the correct tax code, and the true cumulative pay and tax figures including any taxable termination payment. The confidentiality provisions of a settlement agreement bind the parties contractually but cannot override a statutory payroll obligation. Where the settlement agreement includes a termination payment that is part ex-gratia and part subject to PAYE – for example, a payment combining statutory redundancy, enhanced redundancy, and a PILON – the P45 figures must correctly reflect the taxable elements. Payroll teams involved in settlement agreement processing should work closely with the employment law team to ensure the payment breakdown is correctly communicated so the P45 figures are accurate.

What is the correct process when an employee starts a new job before their P45 from the previous employer arrives?

This is a common scenario – the new employment starts, the previous employer has not yet processed the final payroll run, and the P45 has not been issued. The new employer should not wait. They ask the new starter to complete a Starter Checklist and apply the appropriate temporary tax code based on the employee’s answers. When the P45 eventually arrives, the new employer compares the P45 figures to what has already been processed on the Starter Checklist basis. If there is a material difference – for example, the P45 shows significantly higher cumulative pay than the Starter Checklist assumption – the new employer adjusts the tax deduction in the next available pay period and submits updated information to HMRC via FPS. HMRC will then issue a revised tax code if appropriate. The key discipline is not to ignore the arriving P45 once the Starter Checklist has been processed – the reconciliation must be completed to prevent the employee carrying an incorrect tax position through the remainder of the tax year. Mercans’ UK payroll team manages this reconciliation process as a standard part of new starter onboarding.