Code 0T, Termination and overpayment

The use of code 0T can result in basic rate taxpayers with large termination payments received early in the tax year effectively lending money to HMRC, so it is to be hoped that repayment claims will be actioned promptly. The 0T code also poses problems where its operation results in an excessive tax withholding and the employee has been promised a particular net payment. In such cases, there can be the risk of employees subsequently being able to reclaim the overpaid tax from HMRC with the result that they are better off than the termination agreement intended. Those drafting compromise agreements need to take care not to overpay.