(Currently dropped due to general election – expected to be revisited)

There are planned changes to termination payments from 6 April 2018.

Current position

If conditions are met, up to £30,000 can be paid tax free on the termination of your employment i.e. on genuine ex-gratia payments to compensation employees for the loss of their position. The statutory redundancy pay is always tax free but will eat into this £30,000 allowance.

The legislation around termination payments can be unclear and advice should be taken before paying employees any amounts above the statutory amounts, without deducting tax or National Insurance. If there is a history of paying employees ‘x’ amount following redundancy or, the ‘thank you’ payments are in any way expected, this alone can make the payment fully taxable.

Alterations

As it currently stands, amounts above £30,000 are subject to income tax only. The new rules will charge amounts exceeding £30,000 to National Insurance; but only for the employer i.e. secondary class 1 National Insurance.

It is currently possible to obtain further relief on amounts above £30,000 if you spend any of your time abroad during your employment (you also have to meet some other conditions). This additional relief is, however, being abolished (exempt in the case of seafarers).
Lastly, payments in lieu of notice aka ‘PILONs’ will become taxable in full whereas at the moment, any non-contractual PILON would normally fall under the £30,000 bracket.

The full government consultation can be found by clicking here.

Please do not hesitate to get in touch with us if you have any queries.

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