It is commonly known that when making a redundancy or severance payment, up to £30,000 can be paid free of tax. If any payment which does not fall within the £30,000 exemption is made after the termination date and after the issue of the P45, the employer currently only has to deduct tax at the basic rate (currently 20%) under the BR Tax Code regardless of the level of earnings of the employee.
However after the 6th April 2011 under the Income Tax (Pay As You Earn) (Amendment) Regulations 2011 the full 20%, 40% or 50% (as applicable) must be deducted (using the '0T' tax code). The practical impact of this change is that, as a general rule, employers should make all termination payments before issuing the P45.
www.reculversolicitors.co.uk & www.kent-employment-solicitors.co.uk
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