P45: What Employers Need to Do When an Employee Leaves

Every time an employee leaves your business, you have a legal obligation to give them a P45. It does not matter whether they resigned, were dismissed, were made redundant, or their fixed-term contract ended. No P45 means you are breaking the law, and HMRC can fine you for it.

This is one of those tasks that seems straightforward until something goes wrong. The employee left three weeks ago and you forgot. Your payroll software generated it but nobody sent it. The employee disputes the figures. These situations happen more often than most employers would like to admit.

This guide covers exactly what you need to do, when you need to do it, and what happens if you get it wrong.

Last updated: April 2026

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P45 Employer Guide UK: What Is a P45 and Why Does It Matter?

A P45 is an official tax document that records how much an employee has been paid and how much tax has been deducted during the current tax year. When an employee leaves, you produce the P45 through your payroll software and it gets reported to HMRC through the Real Time Information (RTI) PAYE system.

The P45 has four parts:

• Part 1 goes to HMRC (submitted electronically via RTI)
• Part 1A is for the employee to keep for their records
• Parts 2 and 3 are for the employee to give to their new employer

The P45 tells the new employer what tax code to use and how much the employee has already earned and paid in tax during the current tax year. Without it, the new employer will likely put them on an emergency tax code, meaning the employee overpays tax until the situation is corrected.

For you as the employer, the P45 is your confirmation that you have properly reported the employee's departure to HMRC and that your PAYE obligations for that employee are closed.

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When Do You Have to Issue a P45?

You must issue a P45 on or before the employee's last working day. In practice, most employers issue it on the final day of employment or within a few days of the last payroll run that includes the departing employee.

There is no specific number of days written into the legislation. The legal requirement is that you provide it "on the day on which the employment ceases" under the Income Tax (Pay As You Earn) Regulations 2003. However, HMRC accepts that processing takes time, and a short delay for payroll processing is normal.

What counts as reasonable:

• Issuing the P45 within a few days of the final pay run: fine
• Issuing it within a week: acceptable in most cases
• Issuing it two or three weeks later: pushing it, and the employee may complain to HMRC
• Not issuing it at all: a clear breach of your PAYE obligations

Situations Where Timing Gets Complicated

Employee on garden leave: The P45 should be issued on the actual last day of employment, not the last day they were physically in the office. If their contract runs until 30 April but they stopped coming in on 1 April, the P45 date is 30 April.

Employee dismissed with pay in lieu of notice (PILON): If the contract allows for PILON and the employment ends immediately, the P45 date is the termination date, not the end of what would have been the notice period. Make sure the final pay, including the PILON payment, is processed before issuing the P45.

Death of an employee: You still need to issue a P45. It goes to the employee's personal representative or next of kin. The leaving date is the date of death.

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How to Issue a P45: Step by Step

Step 1: Process the Final Pay

Before you can generate a P45, you need to process the employee's final pay. This includes:

• Their regular salary or wages up to the leaving date
• Any accrued but untaken holiday pay (you are legally required to pay this)
• Any contractual notice pay or PILON
• Any outstanding expenses, bonuses, or commission owed
• Deductions for any overpaid holiday (if your contract allows this)

If you are making someone redundant, the statutory redundancy payment itself is not subject to tax up to £30,000 and does not appear on the P45. But any pay in lieu of notice that exceeds the £30,000 threshold is taxable and should be included.

Step 2: Submit the Final FPS to HMRC

Your payroll software should submit a Full Payment Submission (FPS) to HMRC through the RTI system. This FPS must include:

• The employee's final pay details
• The leaving date
• A "leaver" indicator marking this as their final submission

This is Part 1 of the P45 process. It tells HMRC that this person no longer works for you and confirms their year-to-date earnings and tax.

Important: The FPS must be submitted on or before the employee's payday. Late submissions can trigger penalties from HMRC.

Step 3: Generate the P45

Once the final FPS has been submitted, generate the P45 through your payroll software. Every HMRC-recognised payroll system (Sage, Xero, BrightPay, IRIS, FreeAgent, and others) can produce P45s as part of the leavers process.

The P45 will show:

• Employee's name, address, and National Insurance number
• Your employer PAYE reference
• The employee's tax code at the date of leaving
• Total pay and total tax deducted in the current tax year up to the leaving date
• The leaving date

Step 4: Give Parts 1A, 2, and 3 to the Employee

Hand or post Parts 1A, 2, and 3 to the employee. Part 1A is theirs to keep. Parts 2 and 3 are for their next employer.

You can provide the P45 electronically if the employee agrees, but many employees still expect a paper copy. If in doubt, provide both.

Keep a copy for your records. You should retain P45 records for at least six years in case of an HMRC enquiry.

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Common P45 Mistakes and How to Fix Them

You Forgot to Issue the P45

This happens more often than it should, particularly in smaller businesses where payroll is handled by a single person. If you realise you have not issued a P45:

1. Process it immediately through your payroll software
2. Submit the final FPS to HMRC if you have not already
3. Send the P45 to the employee with an apology for the delay
4. Document what happened in case HMRC asks

HMRC can issue a penalty for late or missing FPS submissions, typically £100 per 50 employees for each month the return is late.

The P45 Has Incorrect Information

If the employee contacts you to say the figures are wrong:

1. Check the payroll records against the figures on the P45
2. If there is a genuine error, submit a corrected FPS (known as an Earlier Year Update if it relates to a previous tax year)
3. Issue a replacement P45 with the corrected figures
4. Write to the employee confirming the correction

The Employee Says They Never Received It

If the employee claims they did not receive their P45, issue a duplicate. Your payroll software can reprint it. Send it by a method you can prove (recorded delivery or email with read receipt).

The Employee Left Mid-Month

This is not really a mistake, but it confuses some employers. You do not need to wait until the end of the month to issue a P45. Process the final pay for the days worked, submit the FPS, and generate the P45. The pay period on the P45 will reflect the actual dates.

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P45 and the Employment Rights Act 2025

The Employment Rights Act 2025 does not change P45 obligations directly, but several of its provisions affect the leaving process in ways that interact with P45 timing:

• Day one unfair dismissal rights (coming 2027) will mean more employees challenge their dismissal, which may delay final pay processing if there is a dispute. Do not delay the P45 because of a dispute. Issue it based on the termination date, regardless of any ongoing appeal or tribunal claim.
• Enhanced day one leave rights (from April 2026) mean employees may have more accrued leave entitlement to be paid out on their P45.
• Strengthened flexible working and zero hours contract changes may affect how you calculate final pay for employees on variable hours. Make sure your payroll system correctly captures all hours worked before generating the P45.

If you are not sure whether your employment contracts and HR processes are up to date with ERA 2025 changes, it is worth reviewing them before issues arise at the point of termination.

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What Happens If an Employee Leaves Without Serving Their Notice Period?

The employee's P45 should still be issued based on their actual leaving date, even if they did not work their full notice period. The P45 records what was actually paid and when employment actually ended.

If you deducted money from their final pay for failure to serve notice (which you can only do if the employment contract specifically allows it), those deductions will be reflected in the P45 figures.

Do not withhold the P45 as leverage to get the employee to serve their notice. This is not legal, and HMRC takes a dim view of employers who deliberately delay P45s.

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P45 vs P60: What Is the Difference?

This causes a surprising amount of confusion.

• P45 is issued when an employee leaves. It covers the tax year up to the leaving date.
• P60 is issued at the end of the tax year (5 April) to every employee still on your payroll. It summarises their entire year's pay and tax.

An employee who leaves mid-year gets a P45. An employee who stays all year gets a P60. An employee who joins mid-year and stays to the end gets both a P45 from their old employer and a P60 from you.

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Record Keeping Requirements

HMRC expects you to keep payroll records, including P45 information, for at least three years after the end of the tax year they relate to. Best practice is to keep them for six years, which aligns with the general limitation period for most civil claims and HMRC's extended enquiry window.

Store P45 records securely. They contain personal data (name, address, National Insurance number, earnings) and are subject to UK GDPR. If you store them electronically, make sure your system is backed up and access-controlled.

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Make Sure Your Leaving Process Is Compliant

The P45 is just one part of the employee exit process. You also need to handle final pay correctly, recover any company property, update your records, and make sure your employment contracts reflect current legislation.

Make sure your employment documents are compliant when employees leave. The EmployerKit Audit reviews your contracts and HR policies against ERA 2025 requirements. From £49. Visit employerkit.com/tools/employerkit-audit.

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Frequently Asked Questions

Q: Can I email a P45 to an employee instead of posting it?

A: Yes, you can provide a P45 electronically if the employee agrees to receive it that way. There is no legal requirement to provide a paper copy, but many employees still expect one. If there is any dispute about whether the employee received it, having proof of delivery (email with read receipt, or recorded post) protects you.

Q: What do I do if an employee asks for a P45 but they are still employed?

A: You cannot issue a P45 to someone who is still employed. A P45 is specifically a leaving document. If the employee needs proof of their current earnings and tax, you can provide a payslip or, at the end of the tax year, a P60. If the employee is asking because they are about to leave, issue the P45 once the leaving date is confirmed.

Q: Does a zero hours contract worker get a P45 when they stop getting shifts?

A: This depends on whether the employment relationship has actually ended. If a zero hours worker simply stops being offered shifts but has not been formally told their engagement is over, the employment may still be live. Under the Employment Rights Act 2025 changes coming in autumn 2026, workers on zero hours contracts will have a right to guaranteed hours after a reference period, which makes this even more important to get right. If you are ending the arrangement, confirm it in writing and issue the P45.

Q: What if the employee refuses to give their new employer the P45?

A: That is the employee's problem, not yours. Once you have issued the P45 and given Parts 1A, 2, and 3 to the employee, your obligation is complete. If the employee loses it or refuses to hand it to their new employer, the new employer can use HMRC's starter checklist (which replaced the P46) to set up the employee's tax code. You do not need to issue a duplicate to the new employer directly, only to the employee if they request one.

Q: I made someone redundant and paid a lump sum. Does this all go on the P45?

A: Not entirely. Statutory redundancy pay and any ex-gratia payments up to the £30,000 tax-free threshold do not go on the P45. They are reported separately to HMRC. Only the employee's regular pay, notice pay, and any taxable element of the termination payment above £30,000 appear on the P45. If in doubt, your payroll software should handle the split correctly, but it is worth checking the figures before issuing.