Every business experiences staff turnover. People join, people leave, and each movement creates payroll obligations. Getting the paperwork right protects your employees from tax problems and keeps your business compliant with HMRC requirements.

This guide walks you through the correct processes for handling starters and leavers, explaining what P45s and P60s are and when you need to issue them.

When Someone Joins Your Business

New employees need to be set up correctly in your payroll before their first payday. The information you gather at this stage determines their tax code and ensures deductions are calculated correctly from day one.

Information You Need to Collect

For every new starter, you need their full name as it appears on official documents, their date of birth, their current address, and their National Insurance number. If they do not know their NI number, they can apply for one, but you should still put them on the payroll using the information you have.

You also need to know their employment start date with you, their contracted hours and pay rate, and their bank details for payment. For RTI purposes, accurate information at this stage prevents problems throughout their employment.

The Starter Checklist

New employees should complete a Starter Checklist (form P46 is no longer used). This tells you about their previous employment and student loan status, which determines what tax code to use.

The Starter Checklist asks the employee to select one of three statements: Statement A if this is their first job since leaving education, Statement B if this is their only job but they have had other jobs since leaving education, or Statement C if they have another job or receive a pension.

Based on their selection, you apply a different tax code. Statement A uses the tax code 1257L (for the current tax year), Statement B uses 1257L on a Week 1 or Month 1 basis, and Statement C uses BR (basic rate).

When They Have a P45

If the new employee has a P45 from their previous employer, this takes precedence over the Starter Checklist. The P45 shows their tax code, total pay, and tax deducted so far in the tax year.

Check that the P45 details match the employee’s information. The name should be exactly as shown on their other documents. If there are discrepancies, clarify with the employee before processing.

Use the tax code from the P45 unless HMRC has sent you a different code. Enter the previous pay and tax figures so that their cumulative position continues correctly.

When Someone Leaves Your Employment

Processing a leaver correctly is just as important as setting up a starter. The information you provide on their final payroll submission and P45 follows them to their next employer.

Final Pay Processing

Calculate all amounts due to the employee on their final pay. This includes any outstanding wages, accrued holiday pay, notice pay if applicable, and any contractual payments like commission or bonuses.

Check whether any deductions need to be made or adjusted. Student loan deductions, attachment of earnings orders, and pension contributions should all be calculated correctly on the final pay.

Issuing the P45

You must give the employee a P45 when they leave. This is a legal requirement. The P45 shows their tax code, total pay, and total tax deducted in the current tax year up to and including their leaving date.

The P45 has multiple parts. Part 1 goes to HMRC (this happens automatically through RTI when you report the leaver). Parts 1A, 2, and 3 go to the employee. They give parts 2 and 3 to their new employer, and keep part 1A for their own records.

Issue the P45 on or shortly after the employee’s last working day. Delays create problems for the employee when they start their new job.

RTI Reporting for Leavers

Your Full Payment Submission for the period containing the leaving date must include the leaver information. This includes their leaving date and a leaving indicator. HMRC uses this to update their records and issue the correct tax code to the new employer.

If you forget to include the leaving date on the FPS, the employee may face problems at their new job. Their old tax code might not transfer correctly, or they could end up on emergency tax while HMRC sorts out the records.

Understanding P60s

The P60 is an annual summary of an employee’s pay and deductions. Every employee who is on your payroll at 5th April (the end of the tax year) must receive a P60.

What the P60 Shows

The P60 summarises the employee’s total pay and tax for the tax year, their National Insurance contributions, student loan deductions, and pension contributions. It is the employee’s proof of earnings and tax paid.

Employees need their P60 for various purposes: applying for mortgages, claiming tax refunds, proving income for benefits, and checking their tax position is correct.

Deadline for Issuing P60s

You must give employees their P60 by 31st May following the end of the tax year. For the tax year ending 5th April 2025, P60s must be issued by 31st May 2025.

P60s can be provided on paper or electronically. If you issue them electronically, make sure the employee can access them easily and print a copy if needed.

Common Mistakes and How to Avoid Them

Delaying P45s is one of the most common errors. When an employee leaves and you do not issue their P45 promptly, they may be put on emergency tax at their new job. This causes frustration for the employee and reflects poorly on your business.

Missing the leaver date on RTI submissions creates similar problems. Even if you issue the P45, HMRC’s records will not update correctly if the FPS does not include the leaving information.

Using incorrect starter information puts new employees on the wrong tax code. This means they either overpay or underpay tax, leading to corrections later that neither party enjoys.

Let Us Handle the Lifecycle Administration

Processing starters and leavers correctly requires attention to detail and knowledge of current requirements. For businesses with regular staff turnover, this administrative burden adds up.

Our payroll services include full processing of starters and leavers. We collect the right information, apply the correct tax codes, and ensure P45s are issued promptly. At year end, we handle P60 production and distribution.

For East Yorkshire businesses looking to simplify their payroll administration, this is included in our standard service. Check our pricing page for details, or get in touch to discuss your requirements.