HMRC has instructed employers, from 6 April 2011, to withhold income tax at the appropriate rate of tax from termination payments made after issue of a P45. At present, only basic rate tax need be deducted and the employee remits any additional tax due at the end of the tax year through self assessment.

As from 6 April, employers must use a 0T PAYE code in two additional circumstances: where a new employee starts work without producing a P45 and where an employer starts paying an occupational pension to an employee in addition to salary.