Payroll when an employee dies

Q: How is tax worked out on the final pay?

CWG2 sets out two stages. Before you have reported the date of death. Deduct PAYE using the employee's existing tax code from payments due to the deceased that are paid in the tax year of death, and report the date of death as the leaving date on that FPS. After an FPS showing the date of death has gone in. Any further payment is taxed using code 0T on a week 1 or month 1 basis. On the FPS, show the date of death as the leaving date, put "Yes" in the "Payment after leaving" indicator, and HMRC's guidance says to select late reporting reason H, correction to an earlier submission. For a payment in the same tax year, the year to date figures on the FPS should include the extra payment. If the payment falls in a later tax year, CWG2 says to record it in the deceased employee's name with year to date figures that reflect only that payment.

Q: How does it work in practice?

Illustration only. A monthly paid employee on code 1257L dies on 10 November 2026. The employer's November payroll is paid on 27 November 2026 and includes salary to 10 November and accrued holiday pay. The employer calculates tax on code 1257L cumulatively, uses category X so no National Insurance is deducted, makes no student loan deduction, puts 10 November 2026 in the "Date of leaving" field, pays the net amount to the executor and issues no P45. In January 2027 a sales commission of £600 earned before the death is approved. Because the FPS showing the date of death has already been sent, the employer taxes the £600 on code 0T month 1. With a basic rate taxpayer and no allowance on that code, tax is £120, the executor receives £480, and the FPS shows the date of leaving, the "Payment after leaving" indicator and late reporting reason H, with year to date figures updated to include the £600. Had the commission been paid after 5 April 2027, the year to date figures would show only the £600.

When an employee dies, you pay everything still owed to their personal representative, deduct tax using the employee’s existing tax code, and deduct no National Insurance or student loan repayments. The date of death goes in the “Date of leaving” field on the next Full Payment Submission, no P45 is issued, and any payment made after that FPS is taxed on code 0T on a week 1 or month 1 basis with the “Payment after leaving” indicator set.

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What does payroll need to do first?

HMRC’s guidance, What to do when an employee dies, starts from a simple rule: you must make all outstanding payments. That usually means salary to the date of death, any overtime, commission or bonus already earned, and accrued holiday pay. HMRC’s student loan guidance names wages, holidays accrued and a final bonus as typical examples of income earned before death and paid afterwards.

You do not need to tell HMRC separately. The 2026 to 2027 Employer Further Guide (CWG2) says there is no need to tell HMRC that the employee has died, because HMRC is notified by other government sources; your job is to report the leaving date correctly on the FPS. If the death happened at work, it must also be reported to the police and the Health and Safety Executive, which is covered in RIDDOR reporting requirements.

Who should the final pay go to?

HMRC says payments to a person who has died are usually made to the personal representative or executor of the estate. CWG2 adds that the final FPS shows only the deceased employee’s personal details, not those of the representative. Ask for evidence of the representative’s authority before paying significant sums, and keep it with the payroll record.

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How do you report the death on the FPS?

There is no date of death field on the FPS. CWG2 tells employers to put the date of death in the “Date of leaving” field on the FPS that includes the last payment to the deceased. Do not produce a P45: both HMRC’s guidance and CWG2 paragraph 1.15.2 are clear on that, because there is no new employer to hand it to. The other leaver steps described in P60, P45 and payslips still apply to the payroll record itself.

If the death was not reported on the right FPS, HMRC’s guidance says to follow its normal process for correcting a leaver who was reported late.

How is tax worked out on the final pay?

CWG2 sets out two stages.

Before you have reported the date of death. Deduct PAYE using the employee’s existing tax code from payments due to the deceased that are paid in the tax year of death, and report the date of death as the leaving date on that FPS.
After an FPS showing the date of death has gone in. Any further payment is taxed using code 0T on a week 1 or month 1 basis. On the FPS, show the date of death as the leaving date, put “Yes” in the “Payment after leaving” indicator, and HMRC’s guidance says to select late reporting reason H, correction to an earlier submission.

For a payment in the same tax year, the year to date figures on the FPS should include the extra payment. If the payment falls in a later tax year, CWG2 says to record it in the deceased employee’s name with year to date figures that reflect only that payment.

Why is no National Insurance or student loan deducted?

CWG2 paragraph 1.15.1 says no National Insurance contributions are due on the earnings of an employee who dies before those earnings are paid. The National Insurance Manual at NIM01023 explains why: under the Social Security Contributions and Benefits Act 1992, a payment made after death cannot be earnings of an employed earner, so neither primary nor secondary contributions arise. HMRC’s guidance tells employers to use category letter X so that the software does not deduct any.

Student loan and postgraduate loan repayments follow National Insurance. HMRC’s student loan guidance says that because no Class 1 contributions arise on earnings paid after death, no loan deductions should be made from any payment after the date of death. See student loan deductions in payroll.

Is there an exception for directors?

Yes. NIM01023 says directors are treated like employees, except that where remuneration was voted or made available to the director before death, National Insurance is still due even if the money is paid afterwards. For a director, check board minutes and when a bonus was formally voted before running the final payroll. The company law side is covered in what happens when a sole director dies.

How does it work in practice?

Illustration only. A monthly paid employee on code 1257L dies on 10 November 2026. The employer’s November payroll is paid on 27 November 2026 and includes salary to 10 November and accrued holiday pay. The employer calculates tax on code 1257L cumulatively, uses category X so no National Insurance is deducted, makes no student loan deduction, puts 10 November 2026 in the “Date of leaving” field, pays the net amount to the executor and issues no P45.

In January 2027 a sales commission of £600 earned before the death is approved. Because the FPS showing the date of death has already been sent, the employer taxes the £600 on code 0T month 1. With a basic rate taxpayer and no allowance on that code, tax is £120, the executor receives £480, and the FPS shows the date of leaving, the “Payment after leaving” indicator and late reporting reason H, with year to date figures updated to include the £600. Had the commission been paid after 5 April 2027, the year to date figures would show only the £600.

How is the tax dealt with for the estate?

The Employment Income Manual at EIM42380 explains that, under section 13(4) and (5) of the Income Tax (Earnings and Pensions) Act 2003, earnings received after death are assessable on the personal representatives as if the employee had received them, and the tax is a debt payable out of the estate. In practice HMRC aims to use whichever basis is most beneficial to the estate, often treating the pay and tax shown on the employer’s records as received before death. Tax deducted on code 0T is therefore not necessarily the final figure; the personal representatives settle it through the deceased’s final tax position, described in a tax return for someone who has died.

What if the person was receiving a company pension?

The rules for pensions you pay through payroll are similar but not identical. HMRC says to report the date of death as the date of leaving and use the existing code, unless it is a new tax year by the time you pay. In a new tax year, use the new year’s code if the date of death has not yet been reported, otherwise 0T week 1 or month 1 with the “Payment after leaving” indicator. If you paid a pension after the death because you were told late, you should recover the overpayment from the executor and correct the year to date figures once it is repaid.

What mistakes come up most often?

Issuing a P45 to the family, which HMRC specifically says not to do.
Leaving the normal category letter in place, so National Insurance and student loan repayments are taken from a payment made after death.
Applying the no National Insurance rule to a director’s bonus that was voted before death.
Using the employee’s normal code for a payment made after the death has already been reported, instead of 0T week 1 or month 1.
Forgetting the “Payment after leaving” indicator, so the extra payment does not tie back to the employment that has already ended.
Putting the executor’s name and address on the FPS in place of the employee’s.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.