P45 Meaning for Employers

A P45 remains one of the most important documents in the offboarding process. It provides a formal record of an employee’s taxable pay and deductions up to the point they leave employment. Although payroll operates under Real Time Information (RTI), the P45 still plays a central role in ensuring accurate tax treatment for departing employees and correct onboarding with their new employer. HMRC has not replaced the P45 with an RTI-only process, so employers must still issue a P45 whenever employment ends under PAYE.

What this article is about
This article explains the meaning of a P45 in UK employment. It sets out what the form includes, the employer’s legal duties when issuing it, common payroll and HR risks, and how the P45 connects to final pay calculations when an employee leaves. The aim is to give HR professionals and business owners a clear, practical and legally grounded guide to managing P45 requirements during employee exit.

The P45 supports the transition between employers. It ensures HMRC has accurate records and helps prevent tax code errors that often lead to emergency tax or incorrect deductions. RTI reporting gives HMRC real-time payroll data, while the P45 gives the employee and their next employer the information needed to apply the correct tax code. For employers, issuing the P45 correctly and on time is part of lawful payroll practice and a key element of employee offboarding.

A poorly handled P45 process creates risks. If the document is delayed or contains errors, the employee may be taxed incorrectly in their next role, HMRC may pursue corrections, and employers may face avoidable administrative work. A clear understanding of how the P45 works and what it means for final pay reduces these risks and strengthens payroll compliance.

When an employee leaves, their P45 effectively closes off their employment tax record with that employer. It allows the next employer to pick up the correct tax position without estimating earnings or relying on temporary tax codes. For HR teams, the document is both a compliance requirement and a tool that supports a smooth exit process.

Section A: What a P45 Means in UK Employment

A P45 is central to how HMRC tracks an employee’s taxable pay when they leave a job. It confirms the tax position up to the employee’s final working day and allows their next employer to apply the correct tax code. For HR and payroll teams, understanding what the P45 represents is critical to ensuring accurate offboarding and meeting PAYE obligations.

The P45 operates within the PAYE system. When an employee leaves, the employer must stop reporting earnings through their normal RTI submissions for that individual and instead issue a P45 that finalises taxable pay and deductions to date. This creates a clear HMRC record of the employee’s total earnings and tax paid during that period of employment. It prevents duplication or omission of taxable pay when the employee moves to their next job, and it remains a mandatory step even though RTI is in place.

Issuing a P45 on time supports payroll accuracy for both the old and the new employer. Without it, the new employer typically applies an emergency or temporary tax code until HMRC confirms the employee’s correct details. This often results in higher initial tax deductions, employee disputes and avoidable queries flowing back to HR teams. In contrast, a correctly completed P45 gives the new employer all the information needed to set up PAYE immediately and accurately.

A P45 also acts as a compliance safeguard. It shows the employee’s leaving date, taxable earnings and tax deducted so far in the tax year. HMRC uses the P45 to update its internal systems and ensure the employee’s annual tax position is calculated correctly. If the P45 is wrong or late, HMRC may require further corrections from the employer or the employee, creating additional work and potential delays in resolving tax issues.

The meaning of a P45 extends beyond simply being a form. It is a formal termination point in the PAYE relationship. Once issued, it confirms that the employer no longer has obligations to deduct tax or report pay for that individual. It also ensures that statutory deductions for National Insurance and other withholdings cease at the correct point. From an HR perspective, this document marks a core step in the offboarding checklist and should sit alongside other leaver documentation and exit processes.

P45s remain relevant even though payroll data is provided to HMRC through RTI. RTI tells HMRC what has been paid, but the P45 provides the employee and their next employer with the information needed to avoid incorrect tax codes and to ensure continuity between employments. HR teams should treat both as essential and complementary parts of the leaving process.

Section A summary
The P45 confirms an employee’s taxable pay and deductions up to their leaving date and marks the point at which the employer’s PAYE responsibilities end for that individual. It ensures the next employer can apply the right tax code immediately and helps HMRC maintain accurate tax records. For employers, issuing it correctly supports compliance and reduces payroll errors and disputes.

Section B: What a P45 Includes

A P45 is structured to give a complete and accurate picture of the employee’s tax position up to the date they leave. HR and payroll teams must understand each part of the form so they can verify the information before issuing it and respond to queries from departing employees or HMRC. A correctly completed P45 supports smooth transitions between employers and reduces the risk of tax code errors.

The P45 is divided into several parts, each with a distinct purpose. Part 1 is sent electronically to HMRC through RTI. This ensures HMRC receives immediate confirmation of the employee’s leaving date, taxable pay and tax deducted. Part 1A is given to the employee for their personal records, while Parts 2 and 3 are passed on to their new employer so they can set up PAYE correctly. Although RTI reduces the administrative burden, these parts still play a vital role in the employee’s onward tax compliance.

The details on the P45 are tightly defined. They include the employee’s full name, National Insurance number, payroll number where applicable, tax code at the time of leaving, total taxable pay to date in the current tax year and total tax deducted to date. The leaving date is a key field because it determines when PAYE obligations cease and prevents further payroll entries. HR teams should verify this date carefully, particularly where employees work a period of garden leave or PILON is paid. For accuracy, the leaving date for garden leave is the final day of garden leave, while the leaving date for a payment in lieu of notice (PILON) is the last contractual day of employment.

The tax code on the P45 carries significant weight. It tells the next employer how much tax-free allowance to apply and whether the employee had any adjustments, such as for benefits in kind or unpaid tax from earlier in the year. If the tax code is wrong or outdated, the new employer may make incorrect deductions, causing downstream issues that ultimately return to the original employer for rectification.

HMRC uses P45 information to match the employee’s earnings to their tax record for the year. If the figures on the P45 differ from those in the RTI submissions, HMRC may open a query. Errors often arise from incorrect final pay calculations, failure to include outstanding bonuses or commission or incorrect treatment of statutory payments. HR and payroll teams should review all final payments before generating the P45 to prevent inconsistencies.

A P45 must also reflect any adjustments made when calculating final pay. This includes repayment of overpayments, deductions authorised by contract and taxable elements of termination payments. Incorrect or missing adjustments on the P45 can cause the employee’s annual tax calculations to be wrong, requiring HMRC interventions later in the year.

Section B summary
The P45 contains the employee’s personal details, tax code, leaving date, taxable pay and tax deducted to date. It is split into parts for HMRC, the departing employee and their new employer, each serving a crucial role in maintaining accurate payroll records. For HR teams, careful checks before issuing the P45 prevent payroll disputes, HMRC queries and errors for the employee’s next employer.

Section C: Employer Obligations When Issuing a P45

Issuing a P45 is a legal requirement when an employee leaves employment. HR and payroll teams must ensure the process is handled promptly and accurately, as delays or errors can have direct consequences for both the departing employee and the organisation. Understanding the specific obligations helps employers remain compliant with PAYE rules and reduces the risk of avoidable HMRC interventions.

The employer must issue a P45 immediately after the employee’s final payment has been processed. This means all outstanding earnings, statutory payments and deductions must be calculated first. The P45 cannot be issued before final pay is confirmed, because the taxable pay and tax deducted to date must reflect the complete and accurate totals. Where final pay is delayed due to unresolved deductions or adjustments, the P45 must be held until payroll is fully updated. Employers must also ensure that the P45 information is consistent with the data submitted in the final RTI Full Payment Submission (FPS).

Employers can issue P45s electronically or in paper form. HMRC accepts digital P45s, and electronic issue is now the most common method, provided the employee can access and retain the document. Printed versions may still be provided where needed, but digital versions meet all legal requirements. Regardless of format, the obligation is the same: the employer must provide the P45 without unreasonable delay once final pay is settled. Withholding a P45 due to conduct issues, disputes, claims negotiations or refusal to work notice is unlawful.

The P45 must accurately reflect the employee’s leaving date. This date determines the last day for which the employer is responsible for PAYE reporting and National Insurance calculations. If the leaving date is entered incorrectly—for example, where an employee is paid in lieu of notice or placed on garden leave—HMRC may treat subsequent payments as irregular, triggering additional tax scrutiny. For garden leave, the leaving date is the final day of garden leave. For PILON, the leaving date is the last contractual day of employment. HR teams should ensure payroll and HR records align before the P45 is generated.

Employers also have a duty to ensure the P45 matches the information submitted through RTI. If discrepancies occur, HMRC may contact the employer seeking clarification, and the employee may face tax code adjustments in their next role. A final internal check between payroll calculations and the P45 fields prevents inconsistencies that could otherwise lead to administrative corrections later.

If an employee is re-employed shortly after leaving, the employer cannot reuse the old P45. A new PAYE record must be created. If they return in the same tax year, the employer must treat them as a new starter unless they were mistakenly processed as a leaver. The new starter process must be completed using HMRC’s starter checklist, which replaced the old P46 form.

If the employer becomes insolvent, responsibility for issuing P45s normally transfers to the appointed insolvency practitioner. HR teams within solvent businesses should be aware of this rule, as it affects employee rights and PAYE compliance during business failure events.

Section C summary
Employers must issue a P45 immediately after final pay is processed, ensuring the form reflects accurate taxable pay, tax deducted and the correct leaving date. Delays or inaccuracies create compliance risks and may lead to HMRC queries or incorrect tax codes for the employee. Clear alignment between HR and payroll processes ensures a lawful and efficient offboarding. Insolvency practitioners become responsible for P45s when a business enters formal insolvency.

Section D: Impact of the P45 on Final Pay and Future Employment

A P45 directly affects how final pay is treated for tax purposes and how the employee is set up in their next employment. HR teams must understand this relationship, as errors at this stage often create downstream problems that are difficult and time-consuming to correct. The P45 forms part of the wider exit process by ensuring both the departing employer and the next employer apply PAYE correctly.

When an employee leaves, the P45 reflects their taxable earnings and tax paid up to the point final pay has been calculated. If there are further payments after the P45 is issued—such as late commission, bonus adjustments or corrected overpayments—these cannot be added to the original P45. Instead, the employer must operate tax on these payments using the “0T Week 1/Month 1” tax code, regardless of whether the payment relates to work done before leaving. HMRC prohibits reissuing or updating an original P45 to include additional earnings. This rule reinforces the importance of resolving all outstanding pay before generating the P45.

For the employee’s next employer, the P45 is essential for setting up a correct tax code. Without it, the new employer may need to rely on an emergency tax code, which often results in higher initial deductions. This is one of the main reasons employees chase P45s quickly—delays can translate into unexpected deductions in their new role. A clean, accurate P45 reduces the likelihood of disputes and prevents unnecessary contact back to the former employer.

Where an employee leaves before final pay is fully settled, employers must still follow the rule that the P45 can only be issued once all taxable pay and tax deducted to date is finalised. Attempting to issue a P45 early creates immediate compliance risks. If final pay is still being calculated due to bonus reconciliations, overpayment corrections or deductions, payroll must wait. Issuing a premature P45 creates inconsistencies between RTI submissions and the data on the form, resulting in avoidable HMRC queries.

If the P45 is wrong, the employer must correct the underlying payroll records, submit a corrected RTI FPS and then reissue the form to the employee as a replacement P45. This process ensures HMRC systems are updated and prevents mismatches that could otherwise affect the employee’s tax code in their new role.

If a P45 is lost, the employer cannot produce a duplicate version of the original form. Instead, the employer must provide the employee with a Statement of Earnings (a P60 substitute) confirming taxable pay and tax deducted so far in the tax year. The new employer will then set up PAYE using the employee’s starter checklist, which replaced the old P46 form. While accepted by HMRC, this workaround is less precise than a P45 and can delay correct tax code allocation.

Section D summary
The P45 directly influences how final pay is taxed and how a new employer sets up the employee under PAYE. Issuing the P45 only after final pay is confirmed prevents compliance issues and avoids inaccurate tax deductions in future employment. A correct and timely P45 supports clean payroll transitions and reduces the risk of HMRC intervention or employee disputes.

FAQs

What does P45 stand for?
P45 does not stand for a phrase or acronym. It is simply the HMRC form reference used for ending employment under PAYE.

When must an employer give a P45?
An employer must issue a P45 as soon as the employee’s final pay has been processed. This includes any outstanding earnings, deductions or adjustments due up to the leaving date.

Can an employer refuse to issue a P45?
No. Withholding a P45 is unlawful. Employers must issue it promptly once final pay is completed, regardless of disputes, conduct issues or refusal to work notice.

Does HMRC still use P45 forms after RTI?
Yes. Although RTI sends payroll information directly to HMRC, the P45 is still required to give the employee and their next employer accurate details of taxable pay and tax deducted to date. HMRC has not replaced the P45 with an RTI-only process.

What happens if an employee leaves and returns quickly?
If the employee returns shortly after leaving, a new PAYE record must be created. If they return in the same tax year, they must be treated as a new starter unless they were mistakenly processed as a leaver. The starter checklist, which replaced the old P46, must be completed if no new P45 is available.

What if a P45 is wrong?
If incorrect, the employer must correct payroll records, submit an amended RTI FPS and reissue a replacement P45 to the employee.

Conclusion

Managing P45 obligations correctly is a core part of the offboarding process for any employer. The form finalises an employee’s taxable pay and tax deducted to date and is essential for ensuring HMRC records remain accurate. It also allows the employee’s new employer to apply the correct tax code immediately, reducing the likelihood of emergency tax deductions and payroll disputes.

A clear understanding of what the P45 contains, when it must be issued and how it interacts with final pay enables HR teams to maintain compliant payroll practices. Any errors can create unnecessary administrative work, so aligning payroll records, RTI submissions and HR data before issuing the form is critical. Employers should also ensure the P45 is handled promptly and securely to support the employee’s transition into their next role. The employer must not withhold a P45 due to disputes, conduct issues or disagreements, and must ensure compliance even where the employee has not worked their notice.

For HR professionals and business owners, the P45 should be treated as a key compliance document within the wider framework of final pay. When issued correctly, it protects both the organisation and the departing employee from tax complications and ensures an orderly conclusion to the employment relationship.

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