We recently reported that changes were being introduced from 6
April 2011 to the way in which PAYE would be applied to cash
payments and share vestings which occur after someone has left
employment and their P45 has been issued. Under the new
rules, employers are now required to apply tax code "OT",
rather than applying the basic rate of income tax. The OT
code means that PAYE is applied as if employment was continuing but
the employee did not have a personal allowance.
There were concerns that this would make the administration of
employee share plans for leavers more difficult to administer,
particularly where an income tax charge arises when shares are
required to be withdrawn from an approved share incentive
plan.
However, following representations about these difficulties, the
Revenue has announced that the new rules will not apply for share
based payments.
From 6 April 2011, the position in respect of cash payments and
share vestings which occur after a P45 has been issued will now be
as follows:
- Cash payments – employers will be required to apply PAYE using the "OT" code.
- Share awards – there is no change from the position which existed before 6 April 2011. Accordingly, where income tax arises on the exercise of options, vesting of share awards or withdrawal of shares from an approved share incentive plan after the employee's P45 has been issued, employers will continue to operate PAYE at the basic rate only. Any additional income tax payable by the employee will continue to be payable through self-assessment.
There has been no change to the NICs arrangements, which
continue as they did before 6 April 2011.
For a copy of our earlier Law-Now, please
click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 11/04/2011.