New rules on Tax and NI treatment of termination payments

By 20th June 2018 June 22nd, 2018 Latest News

New rules on Tax and NI treatment of termination payments

The rules on Tax and National Insurance treatment of termination payments changed on the 6th April 2018 however, awareness is still limited and queries abound. This is not ideal for a revenue-raising measure.

With tax measure, it is the date of termination that is key, not the date of payment. Termination payments made in 2018/19 will fall under the new rules if the termination was on or after 6th April 2018. The previous rules will apply where the date of leaving the employment was 5th April 2018 or earlier.

The goal

The government want to close down the option for employers of removing pay in lieu of notice clauses from employment contracts. The absence of such a clause allowed employers to make a payment for breach of contract, for not allowing notice to be worked.

Such breach payments could be classed as damages, and thus could fall under ITEPA 2003, s 403 and be tax-exempt up to £30,000, and fully NI exempt with no upper limit.

For more information visit: AccountingWeb

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