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Treatment of termination payments

Source: HM Revenue & Customs | 11/04/18

With effect from 6 April 2018, employers will need to pay income tax and Class 1 national insurance contributions (NICs) on certain parts of termination payments made to employees whether or not these payments are contractual. The element that is liable to taxation is the amount of the termination payment that represents a payment in lieu of notice, commonly referred to as 'PILON'. The measure will mean that all PILONs rather than just contractual PILONs will be treated as taxable earnings.

In addition, all employees will pay income tax and Class 1 NICs on the amount of basic pay that they would have received if they had worked their notice in full, even if they are not paid a contractual PILON. This means that the tax and NICs consequences will be the same for everyone and will not be dependent on how an employment contract is drafted or whether payments are structured in some other form, such as damages.

The changes apply to payments, or benefits received on, or after, 6 April 2018 in circumstances where the employment also ended on, or after, 6 April 2018. Foreign service relief on termination payments has also been removed for all UK residents, apart from seafarers from 6 April 2018.

Planning note

The introduction of employer NICs on termination payments above £30,000 and on sporting testimonials of more than the £100,000, which were also expected to take effect from 6 April 2018, is delayed until 6 April 2019.

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Some accountancy websites also provide pages and pages of tax information, helpsheets, etc. We prefer to give clients personally tailored advice. So, if you want details of tax rates and allowances just go to the HMRC website on which you should find what you’re looking for. If you need more individual advice please contact us.

Below are links to websites you may find of interest, but as we like to support our local community and clients, we have included links to websites that may be of interest:

HMRC

FT

BBC

VEALE WASBROUGH VIZARDS

CESP

PRACTICE INDEX

SIMCOMM ACADEMY

More Local:

FOOTPLATE EXPERIENCE

ANGLEBURY PRESS

OFFCAMBER.CO.UK

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