The need to make a payment to an employee after you have already issued their P45 is more common than you may think. Perhaps you’ve discovered they’re owed additional overtime, or maybe there’s been a delay in processing their bonus. Whatever the reason, here is how to handle it
Using a 0T Tax Code
When you make a payment after issuing a P45, you’ll need to use the 0T tax code on a week 1/month 1 basis, depending on how they were previously paid. This means tax will be deducted at the basic, higher, and additional rates without any tax-free personal allowance. It might seem a bit harsh, but don’t worry – your former employee can reclaim any overpaid tax through their Self-assessment tax return or by contacting HMRC directly.
Reporting These Payments
You’ll need to record these post-P45 payments through your normal payroll system, but they require special handling in the following way;
- The payroll report to HMRC must be shown as an “after leaving” payment in your payroll software
- Issue a letter to the former employee explaining the payment and the tax and National Insurance deducted
- Keep clear records of when and why the payment was made
National Insurance Contributions
You’ll still need to deduct National Insurance contributions from post-P45 payments if they fall within the relevant earnings period. The rates and thresholds remain the same as for regular payments.
Timing Considerations
Try to process any additional payments as quickly as possible after discovering they’re needed. The longer you wait, the more complicated it can become for your former employee and payroll administration.
Finally, it is imperative that a revised or amended P45 MUST NOT be given to the former employee. If they query why a further P45 has not been issued, advise that the written statement is a requirement of HMRC and full details of the gross amount and deductions have been sent to HMRC. A further P45 will only mess up their tax records.
