Changes to the taxation of employment termination payments

Are you considering the termination of any employment contracts? If so, please note the potential changes from April 2018.

Draft legislation that is expected to come into effect from April 2018, means that Employer NI (currently 13.8%) must be paid on all sums over £30,000 and all payments in lieu of notice.

It is anticipated that this will be collected in ‘real-time’, as part of the employer’s payroll returns and remittances to HMRC.

This measure is intended to bring fairness and clarity to the taxation of termination payments by making it clear that all payments in lieu of notice (PILONs), rather than just contractual PILONs, are taxable earnings. All employees will pay 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.

In view of the potential changes, if you are considering any terminations, then you may wish to watch the outcome of this news and potentially bring forward such action.

You can read the Government Policy Paper by clicking here