Last year HMRC changed the tax code to be applied to cash payments of PAYE income made to an employee after cessation of employment which were not included in the P45. The tax code changed from the basic rate (BR) tax code to zero T (0T). However, in a last minute concession to this change, payments of PAYE income made in the form of share-based payments continued to be taxed at BR.
Over the past few months HMRC has engaged with different groups of employers, share scheme administrators and representative bodies and concluded that many employers favour a simple process and a single tax code. It also found that in some cases single payments made up of both cash and share-based elements were being made. In these circumstances employers were having difficulties in operating two different tax codes on the two separate elements of the payment.
In order to deal with these concerns, from 6 April 2012 the 0T tax code should be used on a non-cumulative basis against share-based payments (those in the form of securities, interests in securities and securities options) made to an employee after employment ceases and which have not been included in the P45. This will align all post-employment earnings under the same tax code.
This change requires amendments to the Income Tax (Pay As You Earn) Regulations. HMRC has now published the draft amending regulations, which are open for comment until 16 February 2012.