Severance payJune 8, 2011 It used to be easy to tax severance pay paid after the employee has left and the P45 form has been issued. In the past a BR (basic rate) tax code was applied which meant only basic rate tax at 20% was deducted. Since 6 April 2011 employers are required to apply an OT tax code on a month 1 basis to severance payments made after the employee has left. This means tax is deducted at the basic, higher and additional rates without the benefit of the personal allowances. Income Tax (PAYE)(amendment) regulations (SI 2011/729)
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