DO Tax Code

Roxannebo · PayPerShop Newbie Joined: 31 Oct 2007 Posts: 5

Hello,

I have to make a payment to an employee, after leaving, who was on a DO tax code.

Normally on any other Tax code the employee is put on to BR.
Should I put them on to a DO M1 in this instance??

Any help will be great!

Looking forward to your responses Smile

Ian Congreave · Posted: Thu Nov 01, 2007 7:51 am Post subject: Tax code after termination

Welcome to the Forum and thank you for the question!

It seems sensible to deduct tax using D0 from a payment after termination and after issuing the P45. However, PAYE rules do not require you to do so. The official instructions, found on page 15 of CWG2, are that you use code BR M1, do not issue another P45, and write a letter to the employee giving the date of payment, the gross amount of the payment, and the amount of tax deducted. It is worth warning the employee that HMRC will still want the tax that you haven't deducted in the future. The payment and tax deducted must be included on the employee's year-end P14.
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Ian Whyteside · Posted: Fri Nov 02, 2007 11:16 am Post subject: Tax Code after termination

I couldn't have put it better myself Ian, but don't you think it is odd that in this case the correct code to use is one which collects less tax than the employee was normally supposed to pay and where there will have to be some settlement later.

We all know that the use of BR protects employees, and HMRC, from underpayments when a payment is made after leaving but I would have thought they, HMRC, would also recognise that if the normal code was D0, or a K code, that it might be prudent to change the rules in order to preserve their revenue.

Ian Whyteside

deadeyeshark · PayPerShop Newbie Joined: 07 Nov 2007 Posts: 2

I've always found that strange, obviously a loop hole that could be put to effect!

I seem to think with a Payment after leaving you still need to complete a P45, but send all parts back to the revenue.

Ian Congreave · Posted: Thu Nov 08, 2007 8:41 am Post subject: Tax code after termination

To clarify the rules here, two quotes from CWG2

In the case of �standard� payments, e.g. final payment of salary or wages, holiday pay, week in hand payments, bonuses, arrears of pay and so on, quoting from page 15:

Jim Ross · Posted: Wed Jan 23, 2008 12:49 pm Post subject:

regarding the 'letter' does anyone actually do this - we issue a payslip that has all that information, hopefully, this is enough to satisfy compliance

Ian Congreave · Posted: Thu Jan 24, 2008 7:09 am Post subject: Code BR for termination payments

I don't know how common the practice is but, in the company I used to work at, we would always send a letter to someone whose taxable termination payment had been taxed using code BR instead of the more appropriate. The letter explained how the final payment was made up, i.e. how much of it was taxable and how much exempt, and included a reminder that they were still liable for the additional tax on the termination payment. As I recall, we used to advise them to put enough money away in an interest account so as to be able to meet the remaining liability when it was demanded.
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