When an employee exits a company—whether due to resignation, retirement, dismissal, or redundancy—the employer must follow a clear, legally compliant process. In the UK, mismanaging this transition can cause issues with HMRC filings, payroll discrepancies, and even disputes with former staff.
The employee leaving procedure in the UK is a structured process that involves notifying HMRC, issuing the right documents, and ensuring all final payments are accurate. Missing just one detail can create lasting payroll issues or invite unwanted scrutiny from tax authorities. That’s why understanding the correct steps is more than best practice—it’s essential compliance.
Finalising Payroll and Notifying HMRC
The departure process formally begins when the employee’s last working day is confirmed. At this stage, the employer must input the correct leaving date into their payroll software and ensure it matches all internal records. This is followed by submitting a Full Payment Submission (FPS) to HMRC, which must include the final salary details, all tax and National Insurance deductions, and the leaving date.
Employers must also issue a P45 to the departing employee. This document outlines total pay and taxes paid so far and is essential for the employee’s future employment. If this information is submitted late or inaccurately, it could lead to penalties or confusion with the employee’s tax code and benefits eligibility.
Handling Complex Timing and Errors
The process can become slightly more complicated if the employee’s leaving date falls just after the start of a new tax year. In these cases, the employer should not report the departure in the final FPS of the previous year. Instead, it should be included in the first FPS of the new tax year with updated figures and a ‘0’ value in the payment fields to avoid duplication.
Mistakes do happen. If an employer fails to report a departure or uses the wrong date, the next FPS must correct this with accurate data. Employers can also use correction codes like ‘H’ to inform HMRC that the submission is a late correction. It’s essential not to overwrite the previous data entirely but rather to build upon it with transparency.
What If Circumstances Change?
There are occasions where an employee reported as having left either continues working or returns shortly after departure. If a P45 has not yet been issued, the process is relatively straightforward: remove the leaving date and continue using the same payroll ID.
However, if the P45 has already been provided, the employee must be treated as a new starter and given a new payroll ID. This kind of scenario highlights the importance of timing and communication in HR and payroll processes. Staying accurate and adaptable ensures legal compliance while protecting the employee’s records from inconsistencies.
Retirement, Statutory Leave, and Post-Exit Payments
If an employee retires and begins receiving a company pension, the employer’s responsibilities shift. A departure date is not added to the FPS, and instead, pension payments are processed under a new payroll ID. Tax is still deducted, but no National Insurance contributions are taken.
Similarly, employees who leave during or shortly after statutory leave periods—like maternity or adoption leave—are entitled to full payments even after exit. Employers can either issue a P45 immediately and continue paying using a different tax code, or delay the P45 until all statutory benefits are paid. These choices should be clearly communicated and agreed upon beforehand.
Payments After Issuing a P45
Sometimes, additional payments are made after a P45 has been issued, such as bonuses or outstanding holiday pay. In such cases, employers must use the emergency tax code 0T (or S0T/C0T in Scotland and Wales), and deduct National Insurance where applicable.
These payments must be clearly recorded in a new FPS using the original payroll ID, with “Payment after leaving” marked. If the payment is in a new tax year, it should appear alone in the ‘Year to Date’ field. Providing written confirmation to the employee, showing gross pay and all deductions, is also a vital part of this process.
How EOR Services UK Can Help
Navigating the complexities of employee departures—especially when handling pensions, bonuses, tax filings, and corrections—can be overwhelming. EOR Services UK offers tailored support to ensure your business remains fully compliant with HMRC regulations.
With expert payroll processing, real-time reporting, and access to CIPD-accredited professionals, EOR Services UK can help you execute the employee leaving procedure flawlessly. Whether you’re managing cross-border teams or just need local expertise in UK employment law, our service simplifies the entire process, allowing you to focus on business continuity while we handle the compliance.
Conclusion
Managing an employee’s exit from your organisation involves far more than a farewell handshake or exit interview. It demands detailed attention to payroll accuracy, statutory benefit rules, and tax compliance with HMRC. Whether correcting mistakes, issuing P45s, or handling late bonuses and pensions, every step in the employee leaving procedure in the UK must be executed with care.
Mistakes not only impact the departing employee but can also cost your business in fines or reputational damage. With clear processes in place—and expert partners like EOR Services UK supporting you—you can manage every departure with precision and peace of mind.
