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Termination Payments to Employees: All Change?

27th July 2015

HMRC has issued a consultation document considering the tax and National Insurance (NIC) treatments of termination payments to employees. 

The consultation follows the Office of Tax Simplification’s report into what has long been a complex issue, fraught with difficulties.   Responses to the consultation are requested by 16 October 2015, with the intention that any legislative changes will be included in next year’s Finance Bill.

The consultation paper considers some fundamental changes, including:

  • Removing the distinction between the tax and NICs treatment of contractual and non-contractual termination payments, thereby, for example, taxing all payments in lieu of notice (PILONS) in the same way;
  • Aligning the tax and NIC treatment of termination payments;
  • Reforming the current exemption (the £30,000 exemption), possibly with a link to statutory redundancy payments and/or length of service;
  • Retaining the current exemption for injury or disability, but with possible changes to the detailed rules;
  • Possible new exemptions for compensation for unfair/wrongful dismissal and future earnings following discrimination.

haysmacintyre will be responding to the consultation.  Please contact Katharine Arthur, Nick Bustin or Joanne Hennessy if you have any views or any queries.  In the meantime, please seek advice from our Employment Taxes team before negotiating or agreeing any termination or compensation payments.

Katharine Arthur
Head of Tax
T: +44 20 7969 5610

Nick Bustin
Director of Employment Tax
T: +44 20 7969 5578 

Joanne Hennessy
Employment Tax Senior Manager
T: +44 20 7969 5579