POLICY ON HOLD UNTIL AFTER GENERAL ELECTION
Reformed tax legislation which was due to take effect from 6 April 2018, in relation to how termination payments made to employees are taxed, has been excluded from Finance Bill 2017. The objective of this new legislation was to ensure that tax-free exemptions cannot be accessed outside of genuine redundancy situations. Our earlier blog explains the background to these changes in detail. These proposals may still be introduced after the general election on June 8th.
As confirmed in the Spring Budget 2017, the new rules are as follows:
- Payments in lieu of notice (a.k.a. PILONs) will be taxable as earnings regardless of whether they are contractual or not;
- There will be no exceptions for foreign service employees;
- Termination payments to the value of £30,000 can be received free of tax and national insurance contributions; amounts over this threshold will be taxable at the appropriate rates;
- Employers will be required to pay employers’ national insurance contributions on all termination payments exceeding £30,000;
If you are an employer wanting to understand how termination payments are taxed, or looking to terminate an employment and unsure about the impact of these changes, please contact us at partners@rjp.co.uk.