When an employee exits your business—whether through resignation, retirement, or termination—the process involves more than just collecting a security pass and saying goodbye. Managing the employee leaving procedure in the UK requires strict adherence to HMRC rules, particularly around payroll updates, tax filings, and documentation.
Employers must handle this carefully to avoid future complications, such as penalties or incorrect tax submissions. From updating payroll software with the correct leave date to issuing the mandatory P45 and managing payments after departure, each step plays a role in ensuring compliance and protecting both employer and employee interests.
Recording the Leaving Date and Submitting Final Payroll
The first step in the leaving procedure is to properly enter the employee’s departure date into your payroll system. This entry must be made when processing their final payment. Including the correct leaving date in your Full Payment Submission (FPS) to HMRC ensures that the employee is officially marked as departed in HMRC’s records.
This report should also contain final tax and National Insurance deductions. After submitting the FPS, you are required to issue the employee’s P45, which details their total pay and deductions during their time with your company. The P45 is not just a legal requirement; it also helps the employee transition smoothly to their next role or claim benefits.
Transitioning Between Tax Years
Occasionally, an employee’s leaving date might fall in the early days of a new tax year—typically just after April 5. In such cases, you must delay reporting the departure until your first FPS for the new tax year. Including the leaving date too early may lead to confusion or rejection by HMRC.
To file correctly, ensure the new year’s FPS includes a ‘0’ in both the “Pay and tax in this period” and “Year to date” fields while maintaining the original payroll ID. This method ensures accurate reporting across tax years and helps maintain orderly records, avoiding potential disputes or double entries.
Correcting Errors and Handling Overlooked Departures
Mistakes in payroll are not uncommon. If you fail to report an employee's departure on time, you must correct it promptly. The next FPS should include the actual leave date, show zero earnings for the period, and retain the last reported year-to-date values.
When correcting reports where the payment date does not match the final payday, include reason code 'H' to indicate a late amendment. If your payroll software supports backdating, you may also submit an FPS for the correct tax year. Correcting such oversights is crucial in preventing long-term payroll discrepancies and helps maintain trust with both HMRC and former staff.
Special Circumstances: Rehiring and Post-Leaving Changes
Sometimes, an employee reported as having left may return to work shortly after. If a P45 has not yet been issued, the process is simple: remove the leaving date and continue using the same payroll ID. However, if a P45 was already provided, you must treat the employee as a new starter with a new payroll ID.
Another scenario is post-leaving payments—bonuses, unpaid wages, or redundancy overpayments made after a P45 has been issued. These should be reported using tax code 0T on a ‘week 1’ or ‘month 1’ basis, and clearly marked as “payment after leaving” in the FPS. This clarity ensures HMRC records remain accurate and avoids payroll errors.
Managing Statutory Leave and Pension Payments
Even after employment officially ends, some responsibilities continue. For example, if an employee on maternity, paternity, or adoption leave departs before receiving all their statutory entitlements, you must continue those payments. One approach is to issue a P45 immediately and continue payments using tax code 0T.
Alternatively, you can delay issuing the P45 until all statutory pay is made, using the employee’s original tax code in the meantime. Similarly, if the departing employee begins receiving a company pension, no leaving date should be entered in the FPS. Instead, issue a new payroll ID for pension payments, retain accurate tax coding, and tick the ‘Occupational pension indicator’ box. Handling these edge cases properly is essential for compliance and financial accuracy.
How EOR Services UK Can Support You
Navigating the complexities of the employee leaving procedure can be overwhelming—especially when tax years shift or when dealing with post-departure payments and statutory entitlements. This is where EOR Services UK proves invaluable. As specialists in UK employment compliance, we offer expert guidance to ensure every step—from final FPS submissions to pension reporting—is handled accurately and efficiently.
Our CIPD-accredited professionals stay up to date with HMRC regulations, helping your business avoid fines and administrative errors. Whether you're managing a simple resignation or a complex termination involving benefits or international payroll, EOR Services UK simplifies the process and supports your compliance at every turn.
Conclusion
Successfully managing the employee leaving procedure in the UK involves more than routine administrative tasks. Employers must take proactive steps to remain compliant with HMRC by correctly reporting leave dates, submitting accurate payroll information, and issuing essential documents such as the P45. Mistakes in this process can lead to costly errors, disrupt former employees' transitions, and expose the business to penalties.
From handling tax year changes to managing pensions or statutory leave payments, each situation demands precision. By maintaining accurate records and understanding HMRC's expectations, you ensure a smooth exit process for employees and reduce your company’s compliance risks. With professional support from providers like EOR Services UK, you can streamline these processes and focus confidently on managing your workforce.
