HM Revenue and Customs (HMRC) has released for comment draft legislation on
proposed changes to the tax codes relating to share-based payments for former
employees.
In its explanatory note, attached to the legislation, HMRC states that, on
April 6, 2011, it changed the tax code applicable to certain payments of pay
as you earn (PAYE) income made to an employee after the cessation of employment,
which have not been included in the end-of-employment form P45.
The tax code to be operated against cash based payments changed from the basic
rate (BR) tax code to zero T (0T). However, payments of PAYE income made in
the form of share-based payments (those in the form of securities, interests
in securities and securities options) continued to be taxed at BR whilst HMRC
reviewed the operational effects a change to code 0T would have on such payments.
The BR tax code deducts tax at a flat rate of 20%, while code 0T is a progressive
tax rate which deducts tax at basic, higher and additional rates depending on
the level of PAYE income paid.
HMRC engaged with a number of different groups of employers, share scheme administrators
and representative bodies in preparing its legislation. Most of those consulted
favoured a process that was simple to understand and operate. In addition, HMRC
says that some requested that a single tax code be applied to all payments of
PAYE income, whether cash or sharebased, made after cessation of employment
which have not been included in the form P45.
As a result, the draft legislation provides that, from April 6, 2012, the 0T
tax code, rather than code BR, should be used on a noncumulative basis to deduct
tax on share-based payments made to an employee after cessation of 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 does not anticipate that this will cause significant costs to employers,
but says it would welcome any evidence about the likely level of costs.
Published on January 19, the draft remains open for comment until February
16.
LAWANDTAX-NEWS.COM
