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HMRC is currently consulting on changes to the tax and NIC treatment of termination payments made to employees.  In their words not mine, the proposed changes are designed to “provide certainty for employers and employees, whilst being fair, simple to implement, and not open to abuse or manipulation.” The proposed changes (if enacted) will take effect from April 2018.

The good news is that the first £30,000 of a termination payment will remain exempt from income tax, and any payment paid to an employee that relates solely to the termination of the employment will continue to be exempt from employee NIC.

Moving forward though, tax and NIC will be payable on any payment that the employee would have received if they had worked their notice period, even if the employee is asked to leave employment immediately or part way through their notice period. So payments in lieu of notice will be both taxable and subject to NIC.

Also, employer NIC will be become payable on termination payments above £30,000 (which are currently only subject to income tax).

Rather amusingly there’s been clarification that the exemption for injury does not apply in cases of injured feelings because of the divergence of judicial decisions about this issue!

Please don’t hesitate to contact Michael Burgess on 01782 279615 if you have any questions.