Introduction to Income Tax and NICs Starters and Leavers
7.1.2 PAYE income tax implications
Generally, there are no implications for the calculation of PAYE income tax where there is a mistimed payment. This is because income tax is usually calculated on a cumulative basis.
The correct way to calculate the tax due is to add all the payments together and follow the standard cumulative calculation procedures.
However, if the employee’s tax code is operated on the non-cumulative basis, then the implication is that only one period’s pay adjustment will be given whereas the payments may represent pay for two pay periods.
Also, sometimes the sum of the two payments may be large enough to trigger a higher rate of tax.
Even so, it is still correct to calculate tax on the sum of the payments and only give a pay adjustment equivalent to one period.
Example 4 A weekly paid employee with tax code 1257L on a Week 1 basis receives two weeks’ pay on the last day of work. The two amounts are added together , and tax assessed on the total with only one period’s worth of pay adjustment given.
This method applies whether the pay adjustment is positive or negative (it would be negative if the employee has a prefix K or SK, CK tax code).
7.2
Payments after leaving
There are special rules to follow when calculating the PAYE income tax and NICs due on a payment made after the employee has left the employment.
7.2.1 PAYE income tax implications
In cases where employment has ceased but the form P45 has not been issued yet, any outstanding payment is subjected to PAYE as normal.
However, if the form P45 has been issued, then the following rules must be observed.
Use tax code 0T, S0T or C0T All taxable payments are now subject to tax at the employee’s marginal rate without applying any pay adjustment. Note that the calculation is non- cumulative (that is, on a Week 1 / Month 1 basis) Use S0T, C0T if the employee’s normal tax code had an S, C prefix
•
page 58 of 60
Made with FlippingBook - Online magazine maker