{"id":20227,"date":"2026-10-17T11:00:24","date_gmt":"2026-10-17T05:30:24","guid":{"rendered":"https:\/\/befreeltd.com\/uk\/?p=20227"},"modified":"2026-10-15T14:41:18","modified_gmt":"2026-10-15T09:11:18","slug":"what-is-a-p45","status":"publish","type":"post","link":"https:\/\/befreeltd.com\/uk\/resources\/blogs\/what-is-a-p45\/","title":{"rendered":"P45 Compliance: Employer Obligations When an Employee Leaves the Organisation"},"content":{"rendered":"\t\t
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Most payroll professionals know what a P45 is. Where it gets complicated is in the interaction between the P45 form and RTI, the specific scenarios that fall outside the standard leaver process, and the consequences when the timing or content is wrong.<\/p>

The Employment Rights Act 2025 changes \u2013 several of which took effect from April 2026 \u2013 have also added new complexity to the leaver process in ways that directly affect P45 obligations. This piece covers the compliance picture as it stands in 2026\/27.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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What Is a P45 and What Does It Actually Confirm?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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The P45 meaning for employers isn’t just “a document you give to someone who leaves.” It’s a legal confirmation that your PAYE obligations for that employee have been properly closed and the mechanism by which their tax and earnings data transfers to their next employer.<\/p>

The P45 form contains four parts, though the post-RTI reality has changed how each is used:<\/p>

Part 1<\/strong> is no longer physically sent to HMRC. Under RTI, the leaver information is transmitted electronically through the Full Payment Submission (FPS) for the pay period in which the employee’s final payment is made. What Part 1 represents operationally is the employer’s obligation to include the leaver indicator on that FPS.<\/p>

Part 1A<\/strong> stays with the employer as a retained record.<\/p>

Parts 2 and 3<\/strong> go to the employee. They hand Part 3 to their new employer, who uses it to set up the correct tax code rather than defaulting to a 0T emergency code.<\/p>

The one-time-only rule is critical: once the P45 is generated and the leaver reported via RTI, the previous employer cannot amend or reissue it. Errors in the P45 form \u2013 wrong leaving date, incorrect pay or tax figures \u2013 cannot be corrected by reissuing the document. They require a separate correction process.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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When Must an Employer Issue a P45 in the UK?\n<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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The obligation is triggered any time an employment ends. What is a P45 in UK terms comes down to this: it’s a legal requirement under PAYE regulations, and withholding it is a breach of those regulations. HMRC can and does issue penalties.<\/p>

The timing rule is that the P45 must be issued without unreasonable delay after the final payroll run. In practice, this means it should be ready by the employee’s last day or very shortly after \u2013 not held until the next payroll cycle.<\/p>

A few scenarios where the standard process doesn’t apply cleanly:<\/p>

TUPE transfers.<\/strong> Under a TUPE transfer, employment technically continues with the new employer \u2013 no P45 is issued because employment hasn’t ended.<\/p>

Death of an employee.<\/strong> A P45 is still required. It’s issued to the personal representative of the deceased, and the leaving date is the date of death.<\/p>

Employees returning after a short break.<\/strong> If an employee is re-engaged quickly after leaving \u2013 particularly common in seasonal work \u2013 a new employment record starts, and the P45 from the previous period should not be reused.<\/p>

Employment Rights Act 2025 \u2013 enhanced day one leave rights.<\/strong> From April 2026, employees have strengthened entitlements to accrued leave from day one. This means final pay calculations need to account for leave entitlement that may now be higher than previously. Getting this wrong affects what’s reported on the P45 form and can trigger disputes.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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How Does the P45 Interact With RTI and Payroll Year-End?\n<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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This is where most compliance failures actually occur: not in the P45 document itself, but in the relationship between issuing it and the RTI submission.<\/p>

The leaver must be flagged in the FPS for the correct pay period. If the final payment is made in August but the leaver indicator isn’t included on the August FPS, the employer needs to submit a corrective FPS for that period. Submitting the leaver indicator on a later FPS creates a date mismatch between what HMRC holds and what the P45 says.<\/p>

Under RTI, HMRC receives the leaver data directly from the employer’s FPS. The new employer doesn’t send their portion of the P45 to HMRC either \u2013 they use the P45 information when processing the new starter’s first FPS. This dual mechanism means that errors in one employer’s RTI submission can create tax code problems for the employee at their next job before either party realises.<\/p>

Year-end adds another layer. If an employee left mid-year and the leaver wasn’t correctly flagged on the FPS at the time, the payroll record may still be active at year-end, creating a discrepancy between what HMRC expects to see on the final FPS and the employer’s own records. These discrepancies surface during PAYE reconciliation and are significantly more time-consuming to resolve than correcting them at the time of leaving.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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What Happens When a P45 Is Wrong, Late, or Missing?\n<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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For the employee:<\/strong> without a P45, their new employer applies the 0T tax code<\/a> \u2013 which taxes all earnings with no personal allowance. For a basic rate taxpayer, that’s an immediate and significant overpayment until HMRC issues the correct code. The employee can reclaim it, but it creates cash flow impact and a frustrating experience they associate with the previous employer’s process failure.<\/p>

For the employer:<\/strong> not issuing a P45 is a breach of PAYE regulations. HMRC can issue a penalty notice, and persistent failures \u2013 particularly in businesses with high turnover \u2013 are flagged during PAYE compliance<\/a> reviews.<\/p>

For payroll errors on the P45 form:<\/strong> since the document can’t be reissued, corrections have to go through HMRC directly. The employee may need to contact HMRC to get their tax record corrected, and the employer may need to submit an amended FPS for the affected period. Neither is quick.<\/p>

Befree’s payroll outsourcing services<\/a> handle the full leaver process for UK employers \u2013 including RTI leaver submissions, P45 generation, and year-end reconciliation \u2013 so these compliance obligations are managed consistently regardless of staff turnover volume or timing.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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P45 Compliance Is a Process Problem, Not a Knowledge Problem\n<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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Most employers know what a P45 is and broadly understand the obligation. The failures happen when the leaver process isn’t embedded in the payroll workflow \u2013 when the leaving date is confirmed late, when the FPS goes out before the leaver indicator is added, or when seasonal or atypical employment doesn’t fit the standard process.<\/p>

Getting this right consistently is a process discipline, not a one-time fix.<\/p>

Contact our team today<\/a> to find out how Befree supports UK employers with compliant, consistent payroll and leaver management.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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FAQs\n<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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What is a P45? <\/h3><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tA P45 is a document issued by an employer when an employee leaves, confirming their total pay and tax deducted in the tax year to that point. It transfers that information to the employee’s next employer and confirms the employer’s PAYE obligations for that individual are closed.\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t\t
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What does the P45 mean for a new employer? <\/h3><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThe new employer uses Parts 2 and 3 of the P45 form to set up the correct tax code for the new starter. Without it, they must apply the 0T emergency code, which taxes all earnings without a personal allowance until HMRC issues the correct code.\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t\t
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Does a P45 still go to HMRC in the UK? <\/h3><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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Not physically. Under RTI, leaver information is transmitted electronically through the employer’s Full Payment Submission for the pay period in which the final payment is made. The P45 form itself goes to the employee \u2013 HMRC receives the data via RTI.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t\t

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Can an employer withhold a P45? <\/h3><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tNo. Withholding a P45 is a breach of PAYE regulations regardless of the circumstances \u2013 including where the employee owes money, hasn’t returned equipment, or is subject to a settlement agreement. HMRC can issue a penalty.\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t\t
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What happens if a P45 has an error? <\/h3><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThe P45 cannot be reissued or amended once generated. The employee may need to contact HMRC directly to correct their tax record, and the employer may need to submit an amended FPS for the affected pay period.\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t\t
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How does the Employment Rights Act 2025 affect P45 compliance? <\/h3><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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Enhanced day one leave rights from April 2026 mean final pay calculations \u2013 which feed into the P45 \u2013 must account for potentially higher accrued leave entitlement. Getting the final pay figure wrong affects what’s reported on the P45 form and can trigger employee disputes.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t