P45 Covering Letter (England & Wales)

A P45 (officially titled 'Details of Employee Leaving Work') is a statutory tax document that an employer in the United Kingdom is legally required to provide to every employee whose employment ends, regardless of the reason for leaving. The obligation is imposed by regulation 36 of the Income Tax (PAYE) Regulations 2003 (SI 2003/2682), which requires employers to complete a P45 and provide it to the leaving employee as soon as practicable after the cessation of employment. HMRC no longer requires a paper P45 to be physically submitted by the employer — instead, the employer notifies HMRC electronically through the Real Time Information (RTI) PAYE system by submitting a Full Payment Submission (FPS) or Employer Payment Summary (EPS) that includes the leaving date and final payroll figures. The P45 is then generated from the employer's payroll software and given to the employee. The P45 has four parts: Part 1 is sent electronically to HMRC through RTI (employers no longer post a paper Part 1); Part 1A is given to the employee for their own records; Part 2 is given to the employee to pass on to their new employer; and Part 3 is given to the employee to pass on to their new employer, who then sends it to HMRC. The P45 records the employee's National Insurance number, the employer's PAYE reference, the leaving date, the tax code at leaving, total taxable pay in the current tax year to date, and total income tax deducted in the current tax year to date.

When a new employer receives Parts 2 and 3 of a new employee's P45, they should act promptly to confirm the employee is taxed correctly from their first pay day. The process under the Income Tax (PAYE) Regulations 2003 is as follows. First, the employer must check that the P45 is for the current or immediately preceding tax year — a P45 from a previous tax year should not be used; instead, the employee should contact HMRC. Second, the employer must enter the information from the P45 into their payroll software: the employee's tax code from the P45 (which may need to be updated if the employee has not started work immediately after leaving their previous employer), the total taxable pay in the year to date, and the total income tax paid in the year to date. Third, the employer submits the information to HMRC electronically through the Real Time Information (RTI) PAYE system when the first payment is made, incorporating the P45 data in the Full Payment Submission. If the new employee does not provide a P45, the employer must use a starter declaration (previously called a P46) to determine the correct starting tax code. The starter declaration asks whether the new job is the employee's only job, their main job (with another job or pension), or an additional job. Based on the answers, the employer applies one of three starting tax codes: 1257L cumulative (main job, only or main source of income); 1257L week 1/month 1 (second job or employee has another pension); or BR (basic rate, for second or further jobs).

If an employee starts a new job without providing a P45 — either because they have never been employed before, or because they have misplaced it, or because they are taking on a second job — the new employer must use the 'starter declaration' process under the Income Tax (PAYE) Regulations 2003. The employee completes a starter declaration (either as a standalone form or as part of the employer's onboarding process) by selecting one of three statements: Statement A (this is their first job since 6 April and they have not been receiving any taxable benefits); Statement B (this is their only job but they have had another job since 6 April, or they have received taxable benefits); or Statement C (they have another job or receive a pension).

Depending on the statement selected, the employer applies a starting tax code: 1257L cumulative for Statement A (assuming the employee has a standard Personal Allowance and this is their only income in the tax year); 1257L week 1/month 1 basis for Statement B (which means the cumulative pay-to-date from the previous employment is not brought forward — each pay period is taxed independently); or BR (basic rate, 20%) for Statement C. The week 1/month 1 basis may result in the employee paying more tax than necessary until HMRC issues a corrected tax code notice (P6 or P9) to the employer based on the employee's actual income records. Employees in this situation are advised to contact HMRC directly to update their records and request a corrected tax code, which typically requires providing the information from their previous P45 or P60.

Yes. The right to be paid for accrued but untaken statutory annual leave on the termination of employment is a fundamental statutory right under regulation 14 of the Working Time Regulations 1998 (SI 1998/1833). Under regulation 13, workers are entitled to a minimum of four weeks' (20 days') paid annual leave per year (the 'European leave'), and under regulation 13A they receive an additional 1.6 weeks (8 days) of UK-specific leave, giving a total statutory minimum of 5.6 weeks (28 days) for a full-time worker. On termination, the employer must calculate how much of the statutory leave entitlement has accrued during the current leave year but has not been taken, and pay the worker in lieu of that accrued entitlement. This payment cannot be withheld, even if the employee is dismissed for gross misconduct. The rate at which holiday pay must be calculated has been clarified by a series of Employment Tribunal and Employment Appeal Tribunal decisions, and by the Employment Rights (Amendment) Regulations 2024. For workers with regular hours and pay, the rate is the worker's normal weekly pay. For workers with irregular hours or pay (including zero-hours workers and those with variable pay including overtime, commission, or allowances), the holiday pay rate is calculated as an average of the worker's pay over the previous 52 weeks in which they actually worked and received pay (disregarding weeks in which no work was performed).

When an employee leaves employment, their rights in respect of any workplace pension scheme depend on the type of scheme and how long they have been enrolled. Under the Pensions Act 2008 and the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010, eligible employees must be automatically enrolled in a qualifying workplace pension. Most auto-enrolment schemes are defined contribution (money purchase) schemes, where both the employer and employee contribute a percentage of qualifying earnings into an individual pension pot. On leaving employment, the employee's options for a defined contribution pot are: leaving it as a deferred pension with the existing provider (the pot remains invested and will be accessible from the normal minimum pension age, currently 55 and rising to 57 in April 2028 under the Finance Act 2004); transferring it to a new employer's pension scheme (if the scheme accepts transfers, which must be done within certain time limits); or transferring it to a personal pension plan (SIPP or other personal pension). The pension provider is obliged to notify the member of their options. For defined benefit (final salary or career average) schemes, the employee will receive a 'deferred pension' — a pension entitlement based on their years of service and salary, payable from the scheme's normal retirement date. The scheme must provide a written statement of the deferred pension within two months of leaving under s.93 of the Pension Schemes Act 1993.

Employers in England and Wales are subject to several overlapping legal obligations regarding the retention of employment records after an employee leaves. Under HMRC's guidance for payroll records (derived from the Income Tax (PAYE) Regulations 2003 and the Finance Act 1998), employers must retain all payroll records — including records of all payments made to employees, PAYE deductions, National Insurance Contributions, and P45 information — for a minimum of three years after the end of the tax year to which they relate. However, HMRC recommends retaining payroll records for at least six years to cover the standard time limit for HMRC compliance checks under the Taxes Management Act 1970. Under the UK GDPR and Data Protection Act 2018, employers must not retain personal data for longer than is necessary for the purpose for which it was collected — but the legal obligation to retain payroll and employment records provides a legitimate basis for retaining records for at least six years. For records that may be relevant to potential Employment Tribunal claims, the relevant limitation periods under the Limitation Act 1980 should be considered: claims for breach of contract (including wrongful dismissal) must generally be brought within six years; claims for statutory rights such as unfair dismissal, unlawful deduction from wages, or discrimination must be brought within three months (subject to ACAS early conciliation). For records relating to health and safety incidents or occupational illness, longer retention periods may apply.