Sort out tax matters when an employee leaves

Standard payments

Income tax and National Insurance contributions (NICs), which are deducted under PAYE (Pay As You Earn), are due in the normal way on any standard payments you make to employees when they leave or after they have left.

Standard payments include:

• final payment of salary or wages
• holiday pay
• bonuses
• arrears of pay

Additional one-off payments such as redundancy money are dealt with separately.

Any such payments should be recorded as normal on the employee's form P11. View a specimen of form P11 on the HM Revenue & Customs website (PDF). If you make any payment in a tax year after the one in which the employee left, record this on a fresh P11.

Your calculations on what is owed will be based on the following:

• Gross pay.
• Any statutory payments they were receiving or were due to receive, eg. sick pay.
• Any expenses they were owed, to the extent that they were not reimbursed expenses and not the subject of a dispensation. Otherwise, these should be entered on the P11D, not taxed by the employer under PAYE. Any expenses allowance paid with wages or salary should be taxed as part of their pay.
• Any other payments you made to them, eg. tax credits or money in lieu of notice.
• Any student load deductions.

Late payments

Include income tax and NICs deducted under PAYE whenever you make the payment. If the employee has already left and been given their P45, put the payment and PAYE details on their form P11, and enter BR as an amended code.

Then write to your former employee giving:

• the date of the payment(s)
• the gross amount of each payment
• the amount of income tax and NICs deducted from each payment

You don't need to let HM Revenue & Customs know at the time you make an extra payment, but you should record it on form P14. Download a sample form P14 from the HM Revenue & Customs website (PDF).

Subjects covered in this guide

• Introduction
• What forms you need to fill in
• Standard payments
• Statutory Maternity, Paternity and Adoption Pay
• Taking account of student loan repayments
• Redundancy payments
• Employment tribunal awards
• Lump sum and non-cash payments

 

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