HMRC in 0T ReversalSaturday, January 7th, 2012
For the tax year 2011/12, HMRC changed the tax code that applied to payments made to employees where the P45 had been issued – ‘payments after leaving’. From this tax year, we have had to make these payments against tax code 0T on a non-cumulative basis rather than the previous codeBR. This was with the exception of payments made in respect of share-based income.
In an announcement on 20 December 2011, HMRC announced that this decision would be reversed from April 2012. From the tax year 2012/13, all payments after leaving, however derived would be taxed using the code 0T on a non-cumulative basis.
HMRC advise that the change will require an amendment to the Income Tax (Pay As You Earn) Regulations. They plan to issue these for a four week consultation in January 2012.
This change has come from a series of negotiations with a number of interested parties. There is little doubt that this particular post-termination payment has been difficult for payrollers to administer as, frequently, these payments have been made up of more than one element – i.e. a cash part and a share-based element. Under the rules that applied in 2011/12, this required tax code 0T to apply to one part and BR to apply to another, both on a non-cumulative basis. The alignment of all post-termination payments being taxed on the one 0T non-cumulative code is a welcome one.