Payment after leaving: What are the HMRC‑compliant final pay rules for UK employers?

With HMRC compliance reviews on the rise and post-leaver payroll one of the most frequent triggers of PAYE corrections, getting payment after leaving right is no longer optional. According to Acas, final pay must be issued on the employee's normal contractual payday, yet many employers still process post-departure payments under the wrong tax code or without the correct FPS indicators, creating avoidable PAYE and NIC exposure. Here is what every UK payroll team needs to know for 2026/27.

What is payment after leaving in the UK?

Payment after leaving is the HMRC term for any payment made to an employee after their P45 has been issued and employment has ended, covering final salary, accrued holiday pay, bonuses, statutory pay, and certain redundancy elements. 

Incorrect handling of post‑termination payments is one of the most common triggers for HMRC compliance reviews, yet payment after leaving remains a widely misunderstood area of UK payroll.

• All subsequent payments must be reported via Real Time Information (RTI) using the correct leaver indicators on the FPS and cannot be processed as standard in-employment pay.

What counts as a “payment after leaving”?

Payments that fall within the payment after leaving category include:

• Accrued holiday pay not taken before the leaving date

• Bonuses or commission earned but unpaid at termination

• Statutory Maternity Pay (SMP) or Statutory Sick Pay (SSP) continuing after departure

• Redundancy elements up to and beyond the £30,000 threshold, as the first £30,000 is exempt from income tax and employer NICs; any excess is subject to income tax and employer Class 1A NIC at 15%. The employee is exempt from NICs on the entire redundancy payment.

⚠️ Warning: Processing any of these as standard payroll, without applying tax code 0T and the "payment after leaving" indicator on the FPS, risks HMRC penalties for mis-coding and incorrect NIC treatment.

Why does payment after leaving matters for payroll compliance?

Errors in post-leaver payroll are among the most common causes of HMRC compliance reviews. Key risks include:

• Mis-coding risk: Using the employee's original tax code instead of 0T removes the non-cumulative basis required for post-leaver payments

• Incorrect P45 use: Reissuing or amending a P45 after departure is not permitted and creates RTI mismatches

• NI misclassification: Applying the wrong NIC category to redundancy or statutory payments can result in over- or under-deduction, both of which trigger liability

These errors can lead to HMRC penalties, interest on underpaid PAYE or NICs, and additional employer liabilities where corrections are required, particularly if RTI submissions are late or inaccurate.

💡 Good to know: HMRC does not require, and employers must not issue, a second P45 when making additional payments after the employee has left. The original P45 remains the definitive leaver record.

How do tax coding and NIC rules apply to payment after leaving?

Tax code 0T applies to all payments after leaving in 2026/27, replacing the employee's original code the moment the P45 is issued. This ensures post-leaver payments are taxed on a non-cumulative basis, meaning no personal allowance is factored in. 

💡 Good to know: For employees taxed under Scottish PAYE, code S0T applies; for Welsh PAYE, code C0T applies. Each post-leaver payment is treated as a standalone pay episode with no reference to earnings earlier in the tax year.

How to apply 0T and M1 coding correctly?

Code 0T must always be applied on a week 1/month 1 basis for payments after leaving, ensuring no cumulative tax history is carried forward. The M1 or W1 suffix confirms the non‑cumulative treatment, which prevents the employee from receiving a tax‑free personal allowance on a leaver payment.

The W1/M1 basis applies to every payment after leaving, including those processed in a later tax year than the one in which the P45 was issued, cumulative tax never applies to post-leaver payments

👉 To note: Code 0T/M1 must not be used if the employee remains on the live payroll under their original tax code. It applies exclusively once the P45 has been issued and the leaver process is complete.

When NIC applies to payments after leaving?

National Insurance contributions apply to most post-leaver payments, though rules vary by payment type. Key rules for 2026/27 include:

• Holiday pay and bonuses: Fully NI-able for both employee and employer, with Class 1 contributions deducted at standard rates.

• Statutory pay (SMP/SSP): Subject to NICs in the normal way for both parties, calculated on the statutory payment value.

• Redundancy payments: The first £30,000 is entirely NIC-exempt. Any excess above this threshold is subject only to employer Class 1A NIC (15%); the employee remains exempt from NICs on the entire redundancy amount.

📌 Example: An employee receives a £5,000 bonus after leaving. Tax is applied under code 0T/M1 with no personal allowance. NICs are deducted in full at the applicable 2026/27 rate, as the payment does not fall within any redundancy exemption.

How is final pay calculated when leaving a job in the UK?

Final pay when leaving a job in the UK combines core components each checked against 2026/27 PAYE and NIC rules. The main inputs are the employee’s pay‑up‑to‑the‑leaving date, accrued holiday pay, statutory pay (such as SMP or SSP), and any outstanding bonuses or commission. Employers may use a modern salary calculator to test net‑pay outcomes, but this is only a numeric check and not a full substitute for robust payroll processing.

Core components of final pay

How are basic and accrued earnings calculated at departure?

Basic earnings at departure start with prorated pay‑up‑to‑the‑leaving date, based on the employee’s normal salary and the final pay period, plus accrued holiday pay from statutory 5.6‑week entitlement and any contractual enhancements, paid at the employee’s usual daily or hourly rate. All overtime, weekend shifts and on‑call time worked up to the leaving date must be included as NI‑able earnings, with PAYE and NICs applied at 2026/27 thresholds.

💡 Good to know: Holiday pay must reflect the actual hours worked and the contract terms, not generic formulas.

How are statutory and one‑off post‑termination elements added?

Once basic and accrued earnings are known, the final pay should include statutory and one‑off post‑termination items:

• Statutory pay: SMP and SSP are capped at statutory rates and treated as payment after leaving under code 0T, with NICs applied.

• Bonuses: Contractual bonuses earned but unpaid at termination are added to the final gross and reported as payment after leaving.

• Commission: Commission on sales completed before the leaving date is generally payable even if paid later, and is treated as standard NI‑able pay.

• Redundancy: The first £30,000 of redundancy pay is exempt from income tax; any amount above is fully taxed and must be reported with the right FPS indicators and PAYE rules.

📌 Example: A maternity leaver receives final salary and SMP after the P45 is issued. The SMP is treated as payment after leaving under code 0T, with NICs applied; any redundancy is checked against the £30,000 threshold.

When and how must the P45 be issued?

The P45 must be issued when an employee leaves, marking them as a leaver and recording their year‑to‑date pay and tax to HMRC. Key points:

• The P45 is a one‑time form: employers must not reissue it even if later payments after leaving (such as holiday pay or bonuses) arise.

• Those post‑departure payments are reported via RTI using the “payment after leaving” indicator on the FPS, with the original leaving date and payroll ID.

Employers must keep P45, FPS and year‑to‑date records for at least three years to support any HMRC check or reconciliation.

💡 Good to know: Employers using a payroll automation system should ensure this configuration is active and tested for leavers. All payroll year‑end reconciliation processes, including treatment of leavers and post‑departure payments, should align with standard payroll year‑end procedures.

Can you reissue or amend a P45 after the employee leaves?

Once the employee's final pay and tax are confirmed, the P45 captures their total year‑to‑date pay, tax code and tax paid for the current tax year. The P45 must be provided without unreasonable delay, ideally with the final payslip or on the last working day, in line with HMRC requirements.

If payments after leaving such as accrued holiday, bonuses or statutory pay become due later, employers must not reissue or amend the P45; those are reported via RTI instead.

⚠️ Warning: Altering or reissuing a P45 after departure is not allowed and can create mismatches between the P45 data and HMRC's records, increasing the risk of enquiries and corrections.

How are leavers and post‑departure payments reported to HMRC?

Once the P45 is issued, each post‑departure step must be reported correctly through the payroll system to keep HMRC records aligned.

• Leaver‑status FPS: Each employee is marked as a leaver in the FPS by entering the correct leaving date, so HMRC knows no further regular pay is expected.

• Year‑to‑date reconciliation: reconcile the YTD figures on the P45 against the final FPS for the departure period to confirm consistency.

3‑year record‑keeping: P45, FPS and associated year‑to‑date records must be kept for at least three years from the end of the tax year to support HMRC checks. Payroll software with built‑in audit‑trail and leaver‑tagging features helps employers evidence compliant FPS submissions if HMRC opens an enquiry.

👉 To note: Post‑leaver FPS entries, including payments after leaving, must still be submitted by the standard RTI deadlines (on or before the payment date), even though the employee is no longer on the live payroll.

What are the common operational scenarios for payment after leaving?

Three core scenarios drive payment after leaving in practice:

• A maternity‑leaver may continue receiving SMP after the P45 is issued, which must be reported under code 0T on the FPS.

• An irregular bonus or commission paid after departure – such as an annual bonus or sales‑based commission – is treated as a payment after leaving once the employee is marked as a leaver on the FPS.

• Delayed or disputed final pay arises when hours, holiday or contractual terms are contested, but payroll must still meet HMRC deadlines for FPS and tax reporting.

Issues with final pay are often linked to unclear employment contract terms, so having clear documented terms is recommended.

Handling SMP and maternity‑related payments after leaving

Maternity leavers often receive SMP after the P45 is issued, as long as they were entitled at the time of departure. This is treated as payment after leaving and taxed under code 0T on a week 1/month 1 basis, with no personal allowance, and reported via RTI. Employers can still claim statutory reimbursement for SMP paid after the employee leaves, up to the statutory limits.

📌 Example: A maternity leaver departs mid‑SMP period; the remaining weeks are paid under 0T as payment after leaving, with the correct FPS indicators and SMP recovery claimed from HMRC.

Processing irregular bonuses and commission after departure

An irregular bonus or commission after the P45 is issued is treated as payment after leaving on the FPS. It stems from earnings or performance in an earlier period, such as a year‑end or sales‑based bonus, and is taxed under code 0T (or S0T/C0T) on a week 1/month 1 basis, with no personal allowance.

💡 Good to know: A written confirmation or payslip for the post‑departure bonus or commission helps defend HMRC enquiries on the timing and nature of the payment.

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