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Termination payments – changes to tax treatment

In July last year, we reported that the Government had launched a consultation on simplifying the tax treatment of termination payments.  After some delay, it has finally published its response along with draft legislation which sets out the changes it has decided to make.

It has been confirmed that the first £30,000 of any termination payment will remain exempt from income tax and the entirety of the payment will be exempt from employee NIC’s.

However, the main changes include:

  • making any payment in lieu of notice subject to income tax and Class 1 NICs, regardless of what is in the contract
  • making employer NICs payable on termination payments above £30,000
  • clarifying that the exemption for injury does not apply in cases of injury to feelings

It has been confirmed that the first £30,000 of any termination payment will remain exempt from income tax

The changes are proposed to take effect from April 2018 and the draft legislation is open for consultation until 5 October 2016.

For further support on the consultation on simplifying the tax treatment of termination payments, please contact our employment lawyers on 

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