Possibly HMRC’s final last words about tax code 0T….again!Friday, December 31st, 2010
Just when we thought we had all of the new uses for tax code 0T sorted out, HMRC issued an email apologising for an error is the guidance given in the latest Notes for Payroll System Developers. Both in HMRC’s correspondence with us and in the latest guidance for developers, we had been told that code 0T would be used, from April 2011, on a cumulative basis where a new employee fails to complete a P46 before the first pay day. This instruction has now been changed and code 0T will be used on a non-cumulative basis.
Our understanding of all of the new uses for code 0T from April 2011 is as follows:
A new employee does not provide form P45 and does not complete form P46 before the first payday
Using HMRC’s Online Services or payroll systems that have online filing facilities, the employer must enter either A, B or C when indicating which P46 Box is checked – it cannot be left blank. Currently, where online services are used for filing, code BR is allocated automatically if Box C is checked. From April 2011, if Box C is checked, the employer will allocate:
- code 0T (non-cumulative) if no P46 has been completed before the first payday or the new employee has not ticked any box, or
- code BR (cumulative) if the new employee has another job or receives a state or occupational pension.
A payment is made to a leaver after form P45 has been issued
HMRC’s guidance on termination payments is provided in the CWG2 Employer Further Guide to PAYE and NICs, on pages 15 and 99. The earlier page relates to so-called “standard payments”, i.e. “salary or wages, holiday pay, week in hand payments, bonuses, arrears of pay and so on”. Guidance on the latter page applies to “additional one-off payments such as retirement, redundancy, lump sums and so on”, i.e. payments to which the £30,000 tax exemption may apply.
However, in either case, the PAYE tax code procedure during 2010/11 is the same – if the termination P45 has already been issued to the employee, the payments are taxed used tax code BR on a non-cumulative basis.
From April 2011, where a payment is made after form P45 has been issued, code 0T must be used on a non-cumulative basis for:
- a former employee (see CWG2 pages 15 and 99)
- the representative of a deceased employee, whether made in the tax year in which the employee died or in a later tax year (see CWG2 page 16)
- a pension recipient in a tax year later than the one in which the person died (see CWG2 page 16).
An employer starts to pay a pension to an employee who remains in employment
Where an employee continues to work for an employer but, at the same time, starts to be paid an occupational pension by the employer, the current rules (CWG2 page 22) require the employer to advise HMRC using form P46(Pen) and, until HMRC sends a new coding notice, calculate tax using
- the employee’s existing tax code for the wage or salary, and
- code BR on a non-cumulative basis for the pension payments.
From April 2011, the employer must apply code 0T on a non-cumulative basis to the pension payments.