PART 2: TAX
Pay after employee has left employment • There is no specific rule about issuing a P45 but employers are required to issue “as soon as is reasonably practicably”. • Where a P45 has not been issued, tables for the week in which the pay day falls should be used - pay and tax to be included in the P45 entries. • Where a P45 has been issued, tax should be deducted at basic rate, BR, on all taxable pay (no free pay allowance) until 5th April 2011 and using code 0T non-cumulatively from 6th April 2011 onwards. Employers must not issue an amended or additional P45 and must provide the employee with confirmation of the payment even if this is just a payslip and include the amount in the next available Full Payment Submission marking this as a payment after leaving and including the payment in the YTD figures. Holiday pay - paid in advance Where an employee receives payment of holiday pay in advance, calculation should be made with reference to the employee’s tax code, either • cumulative - calculate PAYE tax due using the last week in which no pay is received, or the last day of the tax year if this is earlier, or • week 1/month 1 - divide the holiday pay equally between each week/month making separate calculations for each week, then deducting the total amount of tax due by adding together these calculations. COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS Where an employee is leaving employment after the holiday PAYE should be calculated by using the tax week/month in which actual payment is made. If the holiday overlaps into the next tax year, and the holiday pay is being paid in week 52 and there would normally be: • 52 pay days in the tax year, all holiday pay paid in week 52 must be subject to PAYE in week 52, or • 53 pay days in the tax year, and the holiday pay paid in week 52 includes the pay which would normally be paid in week 53, the amount that relates to week 53 should be subject to PAYE as a week 53 payment. The remainder should be regarded as a week 52 payment. TAX - FREE PAY The amount of money an employee or pensioner will be allowed to receive in a tax year before becoming eligible for payment of Income Tax. To ensure that deductions are evenly operated throughout the year, the annual allowance is apportioned throughout the pay periods and is applied to each weekly, monthly or other period of payment. Tables A - Free Pay Adjustment Tables are a ready reckoner provided for this purpose by HMRC. The tables have not changed since 1993 and can be found at No printing, copying or reproduction permitted. https://www.gov.uk/government/publications/tables-a-pay-adjustment-tables.
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