Before you start: Is this the right action?

Only close your PAYE scheme if you are permanently stopping all employment. Do not close your scheme if:

You have seasonal gaps in employment (e.g., hospitality, agriculture)
You plan to re-employ within the same tax year
You are temporarily not paying anyone but may employ again

For temporary gaps, use the irregular payment indicator on your last FPS instead. This prevents HMRC sending missing submission notifications.

Seasonal business PAYE rules

Requirements for businesses with temporary gaps in employment.

Rule: PAYE scheme continues if stopping for less than a full tax year
Do NOT close scheme: Keep scheme open for seasonal shutdowns
Do NOT issue P45s: If employees will return within the tax year
Irregular payment indicator: Set to 'Yes' on last FPS before gap of 3 months or more
Effect of indicator: Prevents HMRC sending notifications about missing submissions

Stop being an employer

Step 1: Pay final wages and issue P45s

Before closing your scheme, you must:

Calculate and pay each employee's final wages, including any outstanding holiday pay
Make all statutory deductions (tax, NI, student loans)
Issue a P45 to every employee

P45 structure and distribution requirements

Legal requirements for P45 form parts and who receives each part.

Part 1: Sent to HMRC electronically via RTI (Full Payment Submission)
Part 1A: Given to employee for their records (may need for Self Assessment)
Part 2: Given to employee to pass to new employer
Part 3: Given to employee for new employer or Jobcentre Plus if unemployed
Timing: Give Parts 1A, 2, and 3 to employee on their last day
Legal requirement: Employers must give P45 to every employee when they leave

Post-P45 payments: If you need to make a payment after issuing a P45, use tax code 0T. You must NOT issue another P45 for the same employment.

P45, P60 and P11D forms

P45 timing

Give Parts 1A, 2, and 3 of the P45 to each employee on or before their last day of employment. Part 1 is sent to HMRC automatically via your Full Payment Submission (RTI).

If you make any payments after issuing a P45, you must use tax code 0T for those payments. You cannot issue a second P45 for the same employment.

P45 special cases

When P45 requirements differ from standard leaver process.

Death of employee: Enter date of death in FPS leaving date field; issue P45 to estate or personal representative
Retirement on employer pension: Do NOT issue P45 if pension paid by same employer (employee not considered to have left)
Seasonal workers returning: Do NOT issue P45 if employees will return within the same tax year

PAYE Manual - cease employment

Step 2: Submit your final FPS with cessation indicator

Your final Full Payment Submission must include specific fields to trigger HMRC's scheme closure process. This is different from the 'Final submission for year' indicator used at tax year end.

PAYE scheme cessation requirements

Required fields and indicators when permanently closing a PAYE scheme.

Cessation indicator field: Set to 'Yes' on final FPS or EPS
Date scheme ceased field: Date the PAYE scheme ended (cannot be a future date)
Date restriction: Must be in the same tax year as the final submission
Leaving date for employees: Must be entered for ALL employees on final FPS
Year-to-date figures: Final pay and deductions for each employee

Important: When closing a PAYE scheme permanently, do NOT use the 'Final submission for year' field. Instead, complete the 'Ceased indicator' and 'Date scheme ceased' fields. These serve different purposes and trigger different HMRC processes.

Stop being an employer

Critical distinction: Cessation vs year-end submission

Many employers confuse these two different submission types. Using the wrong indicator will not close your scheme.

Final RTI submission types - key distinction

Difference between year-end final submission and scheme cessation submission.

Final submission for year: Annual declaration for tax year end - deadline 19 April
Final submission because scheme ceased: Permanent closure of PAYE scheme - no future submissions
Year-end submission deadline: 19 April following the tax year end
Scheme cessation timing: On or before final payday

These are two distinct scenarios requiring different indicator fields. 'Final submission for year' triggers HMRC's End of Year Record process. 'Scheme cessation' triggers HMRC's automated cessation process. Using the wrong indicator will delay scheme closure.

Payroll annual reporting

What if your payroll software cannot set the cessation indicator?

Some older or basic payroll systems do not support the cessation indicator field. If this applies to you, submit your final FPS as normal, then submit a separate Employer Payment Summary (EPS) with the cessation indicator.

When to use EPS instead of FPS for scheme closure

Scenarios where Employer Payment Summary is required for PAYE scheme cessation.

Scenario 1: Forgot cessation indicator: Send EPS with cessation indicator after final FPS
Scenario 2: Software limitation: Send final FPS, then send EPS with cessation indicator
Scenario 3: No final payments: Send EPS with cessation indicator only
Scenario 4: Already sent final FPS: Send EPS with cessation indicator
EPS deadline: By 19th of the following tax month

Send your final payroll report

Step 3: Pay outstanding tax and National Insurance

You must pay all outstanding PAYE, National Insurance, student loans, and other deductions to HMRC by the appropriate deadline.

Final PAYE payment deadlines

Deadlines for paying outstanding tax and NI to HMRC when closing PAYE scheme.

Electronic payment deadline: 22nd of the month following the tax month
Cheque/post deadline: 19th of the month following the tax month
On closure (electronic): Within 17 days of final payment to employees
On closure (post): Within 14 days of final payment to employees
What to pay: Tax deducted + Class 1 NI (employee and employer) + Student Loan deductions + Postgraduate Loan deductions + Apprenticeship Levy
Deductions allowed: Statutory payment recoveries (claimed on EPS) + Employment Allowance + CIS deductions suffered

Running payroll - paying HMRC

What you must pay

Your final payment to HMRC should include:

Income tax deducted from employees' wages
Class 1 National Insurance (employee and employer contributions)
Student Loan deductions
Postgraduate Loan deductions
Apprenticeship Levy (if applicable)

You can deduct any statutory payment recoveries you've claimed on your EPS, plus Employment Allowance and CIS deductions suffered.

Penalties for late payment

HMRC charges penalties for late PAYE payments. These escalate with repeated defaults.

PAYE late payment penalty rates

Penalty structure for late PAYE payments to HMRC.

First default in tax year: No penalty (first failure does not count)
Defaults 1-3: 1% of amount late
Defaults 4-6: 2% of amount late
Defaults 7-9: 3% of amount late
Defaults 10+: 4% of amount late
6 months late: Additional 5% penalty
12 months late: Further 5% penalty
Interest: Daily interest charged from due date to payment date

Late payment penalties for PAYE and National Insurance

Step 4: Close any linked ERS schemes

If your company operates any Employment Related Securities (share) schemes linked to your PAYE reference, you must close these separately.

Employment Related Securities scheme closure

Requirements to close ERS schemes when closing PAYE scheme.

Requirement: Must close any ERS schemes linked to the PAYE scheme
Reason: All ERS schemes must be linked to a live PAYE scheme
Who can close: Employer only - agents cannot close ERS schemes on employer's behalf
Final event date: Date the scheme stopped operating
Nil return requirement: Must file nil annual return for year of closure if no activity
Annual return deadline: Must submit annual return for tax year containing final event date
Scheme types affected: EMI, CSOP, SAYE, SIP, and other share schemes

Tell HMRC your ERS scheme has ended

How HMRC processes your closure

When you submit the cessation indicator correctly, HMRC's systems automatically process the closure. However, automatic closure can be blocked in certain situations.

HMRC automatic PAYE scheme closure processing

What triggers HMRC automatic closure and conditions that prevent it.

Trigger: Date of cessation on FPS or EPS
Automatic process: HMRC system identifies schemes for closure
Outcome: Cessation date applied to employer record
NPS notification: Automatically notified to set 'P ceased' indicator

Conditions preventing automatic closure:

Scheme type is PSC (Personal Service Company) or XP
Scheme has previously merged, succeeded, or already ceased
Cessation date predates the start date
More than 1,000 live employments attached
Payments made after the cessation date

PAYE Manual - cessation of employer record

Reopening a closed PAYE scheme

If you need to employ someone again after closing your scheme, you may be able to reopen your existing PAYE reference rather than registering as a new employer.

PAYE scheme reopening time limits

Rules and time limits for restarting a closed PAYE scheme.

Same tax year: Use existing PAYE reference - submit FPS to automatically restart
Following tax year: Use existing PAYE reference - submit FPS to automatically restart
Cancelled scheme time limit: Can only reopen in the year cancelled or following year
Ceased scheme time limit: Can only restart in the year ceased or following year
After time limit expires: May need to register as new employer with new PAYE reference
PAYE reference format: 123/AB45678 (office number/employer reference) - retained on reopening

Automatic restart triggers: Scheme automatically restarts when FPS is submitted for a pay period after the cessation date, or when EPS is submitted for the tax year following the cessation date.

Stop being an employer - re-employing staff

Practical implications

If you think you might employ again within the next tax year, consider whether closing the scheme is truly necessary. Keeping the scheme open with the irregular payment indicator may be simpler than closing and reopening.

Checklist: Closing your PAYE scheme

Use this checklist to ensure you complete all required steps:

1

Calculate and pay final wages

Include all outstanding pay, holiday pay, and any notice period entitlements.
2

Issue P45 to every employee

Give Parts 1A, 2, and 3 on or before their last day. Part 1 is sent via RTI.
3

Submit final FPS with cessation indicator

Set 'Cessation indicator' to Yes and enter the date the scheme ceased. Do NOT use 'Final submission for year'.
4

Submit EPS if needed

If your payroll software cannot set the cessation indicator on FPS, submit a separate EPS with the indicator.
5

Pay outstanding PAYE and NI

Pay electronically within 17 days of final payment to employees, or by post within 14 days.
6

Close any ERS share schemes

Submit final annual return and close each scheme separately. Only the employer can do this, not an agent.
7

Keep records

Retain payroll records for at least 3 years in case of HMRC enquiries.

Common mistakes to avoid

Using 'Final submission for year' instead of cessation indicator - This is for tax year end, not scheme closure. Your scheme will remain open.
Entering a future cessation date - The date cannot be in the future. Use the actual date the scheme ended.
Forgetting to set leaving dates for all employees - Every employee must have a leaving date on the final FPS.
Not issuing P45s - This is a legal requirement. Employees need P45s for their next employer or to claim benefits.
Closing the scheme for seasonal gaps - Use irregular payment indicator instead for temporary cessation.

Close your PAYE scheme

Pay PAYE to HMRC

Report expenses and benefits (P11D)

Set up as a sole trader

Set up an Employee Ownership Trust

Renting business premises

Before you start: Is this the right action?

Step 1: Pay final wages and issue P45s

P45 timing

Step 2: Submit your final FPS with cessation indicator

Critical distinction: Cessation vs year-end submission

What if your payroll software cannot set the cessation indicator?

Step 3: Pay outstanding tax and National Insurance

What you must pay

Penalties for late payment

Step 4: Close any linked ERS schemes

How HMRC processes your closure

Reopening a closed PAYE scheme

Practical implications

Checklist: Closing your PAYE scheme

Calculate and pay final wages

Issue P45 to every employee

Submit final FPS with cessation indicator

Submit EPS if needed

Pay outstanding PAYE and NI

Close any ERS share schemes

Keep records

Common mistakes to avoid

Related guides in Tax & Finance

Before you start: Is this the right action?

Step 1: Pay final wages and issue P45s

P45 timing

Step 2: Submit your final FPS with cessation indicator

Critical distinction: Cessation vs year-end submission

What if your payroll software cannot set the cessation indicator?

Step 3: Pay outstanding tax and National Insurance

What you must pay

Penalties for late payment

Step 4: Close any linked ERS schemes

How HMRC processes your closure

Reopening a closed PAYE scheme

Practical implications

Checklist: Closing your PAYE scheme

Calculate and pay final wages

Issue P45 to every employee

Submit final FPS with cessation indicator

Submit EPS if needed

Pay outstanding PAYE and NI

Close any ERS share schemes

Keep records

Common mistakes to avoid