Friday, April 8th, 2011
Tax code BR is to be used instead of 0T for payments after termination in the form of employment-related securities or securities options.
Regulations requiring all termination payments made after form P45 has been issued to be taxed using code 0T have already been made and took effect from 6 April 2010.
However, as a result of very late representations, it was made clear to HMRC that the operation of code 0T could present administrative difficulties for companies operating employee share schemes, in particular necessitating the sale of excessive numbers of shares to meet PAYE requirements for tax which may not ultimately be due over the year as a whole.
As a result, on 4 April, further regulations were made that require tax code BR to be used instead of 0T when payments under share schemes arise as a result of an employee
leaving employment. If such a payment in the form of employment-related securities, interest in securities, or gains from securities options, gives rise to earnings, it must be taxed using code BR. This amended rule is also effective from 6 April 2011.
There does not appear to be anything in the explanatory guidance to indicate whether code BR should be applied cumulatively or non-cumulatively. However, based on the historical use of BR and the amended wording in Regulation 37 of the PAYE Regulations, the code should be applied non-cumulatively.
Tax code BR applies therefore to payments under share schemes that are not tax approved, and also to payments under tax-approved share option schemes, i.e. share incentive plans (SIPs), SAYE schemes, company share option plans (CSOPs) and enterprise management incentive schemes, where employees leave the employment before the conditions for tax and NICs relief have been met.