If you have ever had to make a payment to an employee after they have left and you have issued their P45 you will probably have experienced uncertainty about how to deal with PAYE.
It’s happened to us a few times over the last 20 years usually when holiday or commission payments are adjusted after someone has moved to a new position.
Before 5 April 2011 employers were instructed to tax payment using a code of BR. But HMCE didn’t like this because higher rate tax payers didn’t pay the extra slice of tax until the self assessment deadline giving the tax payer an interest free loan for 21 months.
Since 6 April 2011 employers have been required to tax such payment using code 0T eliminating the previous advantage.
There are still problems where the post employment payment relates to shares due to the employee under a share option or similar scheme. If you need more information on this get in touch.
The matter of National Insurance on such payments also raises its head. Where the payment is small and the employer can justify spreading the payment it is possible to reduce the employers NI payment.