PAYE tax code change

Generally when an employment is terminated the employee is given certain terminal benefits. These could include redundancy payments, payment in lieu of notice and other statutory payments. If these payments were made after a P45 had been issued the tax code used for deducting PAYE used to be BR which meant a PAYE deduction @ 20%. That was until 05 April 2011. From 06 April 2011 HMRC changed the tax code to be applied to such payments of PAYE income made to an employee after their form P45 has been issued from the basic rate (BR) tax code to zero T (0T). However, payments of PAYE income made in the form of share-based payments continued to be taxed at BR. The HMRC has now proposed amendments to Regulation 37 of the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) whereby the tax code that applies to share-based payments made to an employee after cessation of employment (which have not been included in the form P45) to zero T 0T. This change will align all post-employment earnings under the same tax code.