New regulations were introduced in April 2011 which changed the tax code that applies to certain payments of PAYE income made to an employee after cessation of employment which have not been included in the form P45. The new regulations introduced the '0T' (zero T) code which deducts income tax at the basic, higher and additional rates depending on the level of income in question, without giving any personal allowances. However, payments made in the form of share-based payments (those in the form of securities, interests in securities and securities options) continued to be taxed under the Basic Rate (BR) PAYE code whilst HMRC reviewed the operational effects a change to 0T would have on such payments.
From 6 April 2012, HMRC have proposed that the 0T tax code (and not the BR code) should also be used on a non-cumulative basis against share-based payments made to an employee who has left employment and which have not been included in the form P45. This change will align all post-employment earnings under the same tax code.
HMRC have now published for comment draft amendments to the PAYE regulations to enable this change. The closing date for comments on the proposed legislation is 16 February 2012.