UK P45 P60 Guide

The resignation email lands on a Friday afternoon. HR confirms the leaving date, IT schedules the laptop return, and someone remembers to update the org chart.

What often gets forgotten until the following Tuesday is the P45.

By then, the leaver has already started chasing it because their new employer wants it before the first payday.

P45s and P60s are the two tax documents that bookend employment. One goes out when someone leaves. The other goes out once a year to everyone still on your books.

Neither is complicated to produce if your payroll software is set up correctly. The problems start when timing slips, when a new starter arrives without one, or when the wrong tax code runs uncorrected for months.

This guide covers the practical mechanics of both forms, what each part of a P45 is actually for, how to handle joiners who do not have one, and the specific mistakes that generate emergency tax codes, HMRC penalties, and employee complaints.

What are P45 and P60 forms and when does your business need them?

P45 and P60 are HMRC tax forms that every UK employer must produce as part of their PAYE obligations.

In our review of payroll processing errors, we find P45 timing failures at off-cycle leavers are the most common documentation gap, particularly in businesses where HR and payroll operate on different systems.

They serve different purposes at different points in the employment lifecycle, but both exist so the tax system can track an individual’s earnings and deductions across jobs and tax years.

A P45 is the leaving document. When an employee’s employment ends for any reason, you must produce a P45 and give it to them.

It records their tax code, total pay, and total tax deducted from the start of the tax year to their leaving date.

The new employer uses this information to continue deducting tax at the right rate without a gap or reset.

A P60 is the year-end summary. Every employee who is on your payroll on 5 April, the last day of the tax year, must receive a P60. It confirms their total pay and total deductions for the entire tax year.

Employees need it for mortgage applications, self-assessment tax returns, and tax credit claims.

The distinction matters operationally. P45s are event-driven: they happen when someone leaves, which could be any day of the year. P60s are calendar-driven: they happen once a year, on a fixed deadline.

Employers who handle leavers promptly but miss the annual P60 deadline still face penalties.

How does the P45 process work when an employee leaves?

When you process a leaver through your payroll software, the system generates the P45 automatically as part of the final Full Payment Submission to HMRC.

We find the most common P45 error is issuing the form before the final payroll run is complete, which requires a corrected P45 and creates a record mismatch with HMRC.

The P45 has four parts, and understanding where each one goes matters because the routing determines whether the employee’s tax continues correctly at their next job.

Part 1 goes to HMRC. Since Real Time Information reporting became mandatory, this submission happens electronically through your FPS. You do not send a paper Part 1.

Your payroll software handles this when you mark the employee as a leaver and run the final pay.

Part 1A is the employee’s personal copy. They keep it for their own records. It shows the same information HMRC received: their tax code, total pay to date, and total tax deducted to date in the current tax year.

Parts 2 and 3 go to the employee to pass on to their new employer.

The new employer keeps Part 2 for their records and uses Part 3 to set up the employee on their payroll with the correct tax code and cumulative pay figures.

If the employee does not have a new employer, they may need to give these parts to Jobcentre Plus to support their benefits claim.

Timing is where the process gets awkward in practice. HMRC guidance says you should issue the P45 on the employee’s leaving date or as soon as reasonably possible afterwards.

Most payroll software generates it when you process the final pay run.

If the employee’s last day falls mid-pay period and you do not run payroll until the month end, there can be a delay of two or three weeks before the P45 is ready.

That delay is the most common source of complaints. The leaver’s new employer wants the P45 before the first payday.

If it does not arrive in time, the new employer must use an emergency tax code, which almost always means the employee overpays tax in their first month.

What should you do when a new starter arrives without a P45?

Not every new employee arrives with a P45 on their first day. They might be starting their first job, coming from a period of self-employment, or simply not have received one from their previous employer yet.

In our assessment of new-starter processing, we find emergency tax codes are applied correctly in most cases but the HMRC Starter Checklist is completed incorrectly far more often than employers realise.

When that happens, you cannot set up their tax code from a P45. You need them to complete HMRC’s starter checklist instead.

The starter checklist replaced the old P46 form in 2014. It collects the information your payroll software needs to assign an initial tax code.

The critical section is the employee statement, where the new starter selects one of three options. Getting this right determines whether they pay the correct tax from day one.

• Statement A applies if this is the employee’s first job since 6 April and they have not received taxable Jobseeker’s Allowance, Employment and Support Allowance, Incapacity Benefit, a state pension, or an occupational pension in the current tax year.

Selecting Statement A apply the standard tax code on a cumulative basis, which gives the employee their full personal allowance from the start.

Statement B applies if this is now their only job but they have had another job or received taxable state benefits since 6 April. This produces a tax code on a week 1 or month 1 basis.

The employee gets the standard personal allowance, but tax is calculated on each pay period independently, without carrying forward any unused allowance from earlier periods.

Statement C applies if the employee has another job or receives a state or occupational pension.

This triggers a BR (basic rate) code with no personal allowance, because the allowance is assumed to be used against their other income source.

The operational risk sits in Statement B. Employees who left a previous job mid-tax-year and have not yet received their P45 often tick Statement A because it looks like the right answer.

If they had earnings earlier in the tax year, Statement A can result in too little tax being deducted. When HMRC catches the discrepancy, the employee faces an unexpected tax bill.

You do not submit the starter checklist to HMRC. You use the information from it to set up the employee’s tax code in your payroll software, and HMRC picks up the details through your next FPS submission.

Keep the completed checklist on file for at least three tax years.

How do P60s work and when must you issue them?

A P60 is a certificate of pay and tax for the complete tax year. You must issue one to every employee who is on your payroll on 5 April.

We find P60 errors cluster around year-end payroll adjustments that are processed after the final FPS but before P60s are issued, creating figures that do not match what employees see on their self-assessment returns.

The deadline is 31 May, giving you just under eight weeks after the tax year ends to produce and distribute them.

The 5 April qualification date catches employers out in two situations. If someone started on 5 April itself, even if it was literally their first day, they are on your payroll on that date and must receive a P60.

If someone handed in their notice but their leaving date is after 5 April, they qualify for a P60 from you even if they have already mentally moved on.

Employees on maternity leave, paternity leave, or long-term sick leave also qualify. They remain employed. The P60 shows whatever pay and deductions you processed during the tax year, including statutory payments.

The P60 shows total pay subject to tax, total tax deducted, total National Insurance contributions (both employee and employer), the tax code in use at 5 April, student loan deductions if applicable, and statutory payment totals.

It does not show benefits in kind. Those are reported separately through P11D reporting.

You can issue P60s electronically or on paper. Most payroll software generates them automatically once you run the year-end process.

The practical step most employers miss is confirming that every qualifying employee actually received theirs.

Sending them by email to work addresses works until someone is on long-term leave and does not check that inbox.

You cannot issue duplicate P60s. If an employee loses theirs, you can provide a written statement of the same information, but it is not a replacement P60.

That distinction matters for mortgage lenders and other third parties who specifically ask for the original document.

What are the penalties for getting P45s and P60s wrong?

The penalty regime is asymmetric. P60 penalties are codified and specific. P45 penalties are less defined but can trigger broader HMRC scrutiny that ends up costing more.

In our review of HMRC compliance action, we find P60 failures trigger more correspondence penalties than P45 failures, because HMRC cross-references P60 data against employee self-assessment submissions.

For P60s, HMRC can charge an initial penalty of up to £300 per form for late issue. If the failure continues, a further penalty of up to £60 per day applies for each day the P60 remains unissued.

For a business with 50 employees, a two-week delay past the 31 May deadline could theoretically generate penalties of £15,000 initial plus £3,000 per day continuing.

In practice, HMRC exercises discretion and tends not to impose maximum penalties for first-time failures where the employer takes corrective action quickly.

For P45s, there is no single fixed penalty amount in the same way. However, failure to issue a P45 is a breach of your PAYE obligations.

HMRC can investigate, and the investigation often widens beyond the P45 issue to examine your broader payroll compliance.

The indirect cost of an HMRC investigation, in time, professional fees, and potential penalties for other issues discovered during the process, typically exceeds any direct P45 penalty.

The more common financial impact of a late P45 falls on the employee, not the employer. Without a P45, their new employer applies an emergency tax code.

The employee overpays tax, sometimes significantly, and then blames you for the shortfall in their take-home pay.

The reputational cost with departing employees, who may be clients, suppliers, or future re-hires, is real even if it does not appear on a penalty notice.

What mistakes do employers actually make with P45s and P60s?

We reviewed the most common payroll processing errors reported by UK employers, and the same patterns appear repeatedly. Most are timing or process failures rather than calculation errors.

Sitting on P45s is the most frequent issue. The leaver’s final pay run does not happen until the normal payroll cycle, and by that point the employee has been waiting two or three weeks.

Some payroll teams do not process leavers until the next scheduled run even when the software supports off-cycle processing.

The fix is simple: process the leaver as soon as the leaving date is confirmed, not when the payroll cycle happens to run.

Applying the wrong starter checklist statement is the second most common problem.

New starters who had previous employment in the current tax year but do not yet have their P45 often select Statement A instead of Statement B.

The result is a cumulative tax code that does not account for earnings already received from the previous employer.

HMRC catches this when the FPS data from both employers does not reconcile, but the correction can take weeks and the employee faces an unexpected tax bill.

Forgetting to update from an emergency code is a more insidious error.