Our December ebulletin noted the HMRC's intention to change PAYE regulations and require employers from 6 April 2011 to apply the usual basic, higher and additional tax rates (without taking personal allowances into account) to post-P45 payments. The draft regulations are still not available, but the latest information suggests that the bands will be applied on a non-cumulative basis, so that the amount by which the payment exceeds £12,500 would be taxed at 50%. The employee would then need to reclaim any tax overpaid.

Employers currently negotiating compromise agreements should ensure they do not contain any contractual promise only to deduct at basic rate.