16th March 2011
Employers need to be aware of an important change to the law regarding termination payments paid to ex- employees after their P45 has been issued.
Currently, when a payment is made to an ex-employee after their P45 has been produced, income tax is deducted at the basic rate only. The ex-employee is then responsible for any additional tax due using a ‘BR’ tax code.
Under the new Income Tax (Pay As You Earn) (Amendment) Regulations 2011, post-termination payments made to a departed employee must be taxed at the full 20%, 40% or 50% rates using the ‘0T’ tax code.
These new regulations come into force on 6 April 2011 and employers should ensure that their payroll department is prepared for this change to the law.
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