How p45 works
When an employee leaves, the employer generates the P45 from the payroll system using year-to-date pay and tax figures, along with the employee's tax code at the point of leaving. The employer keeps one part, gives parts to the employee, and the employee passes the relevant part to their next employer.
The new employer uses the P45 to set the employee's tax code correctly from their first pay run, avoiding emergency tax being applied. An employee who cannot provide a P45, for example a first job or one lost in transit, instead completes a starter checklist so the new employer can determine the right tax code. If an employee is re-employed by the same company later in the same tax year, the P45 figures are used to restart their payroll record with the correct year-to-date totals already in place, avoiding an accidental double application of the tax-free personal allowance.
Example
An employee leaves a job on 15 September having earned £24,000 and paid £3,100 in tax so far that tax year. The employer issues a P45 showing these figures and the employee's tax code. The employee gives it to their new employer, who uses the year-to-date figures to continue the correct tax calculation rather than starting fresh. If the employee rejoins the same company two months later, the payroll team uses the year-to-date figures from the P45 to pick up payroll calculations where they left off rather than starting fresh.
P45 in QuickBooks Online vs Xero
UK payroll add-ons for Xero and QuickBooks Online both generate a P45 automatically when an employee is marked as a leaver in the payroll module, pulling the correct year-to-date figures. Sage 50 Payroll works the same way, producing the four-part form as part of its standard leaver process.
Related terms
How LedgerBPO handles p45
We process leaver paperwork through your UK payroll system so P45s are issued promptly and accurately when staff turnover happens, keeping year-to-date figures correct for both the departing employee and their next employer. This is handled as part of our ongoing payroll support, not as a one-off task.