When an Employee Dies - HMRC clarifies procedures

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17 April 2008

This week's News On Line, published by the Institute of Payroll Professionals (IPP), includes the following item:

"CWG2 error

An IPP member has pointed out a possible error in the CWG2 booklet in respect of payments made to an employee who has died. To clarify the rules HMRC has provided us with the following information. HMRC will be reviewing the CWG2 and will make the necessary amendments to the paper copy when next printed.

The questions that were asked were:

Question

Should a payment after the death of the employee be made to the personal representative or to the employee?

Answer

Regulation 38 does not require an employer to provide information about the personal representative(s). Therefore a payment can be made to the "employee", without requiring an employer to take on the extra burden of obtaining the personal representative's details.

Question

What should employers do as regards final salary payments and P45 issue?

Answer

Regulation 38(1) and (2) provide for the employer to complete a P45 (and send all the P45 to the Revenue) indicating on Part 1 that the employee has died. The P45 should be submitted as soon as possible after the employer learns of the death (without unreasonable delay). However Regulation 38(3) states: "The employer must, on making a relevant payment after learning of the employee's death but before completing Form P45, deduct or repay tax as if the deceased employee were still alive and employed by the employer at the date of the payment."

HMRC recognises that in practice the P45 may not be issued immediately upon the employer becoming aware of the death, and that payments (such as the final monthly/salary payment) may be made after that date, but before the P45 is prepared. This is acceptable as long as there's no "unreasonable delay". Any payment made after the P45 has been issued must be taxed using code BR."

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