New Rules for Termination Payments from April 2018

Changes to the way in which payments made on the termination of an employment are taxed come into effect from 6 April 2018.   As a result of the changes, payments in lieu of notice (PILONs) will be taxed as earnings, regardless of whether there is a contractual entitlement to the PILON, or an expectation that a PILON will be made.

Under the new rules, the payments made on termination are essentially compared to the earnings that the employee would have received had he or she worked their notice period.   Only payments in excess of this are treated as termination payments and benefit from the £30,000 tax exemption, unless the payment is of a type, such as statutory redundancy pay, which benefits from exemption regardless.

Class 1 National Insurance contributions were to have been charged on termination payments in excess of the £30,000 exempt amount with effect from 6 April 2018.   However, the start date for the new Class 1A charge on termination payments has been delayed and will now take effect from 6 April 2019.   Payments made on termination which are taxed as earnings are liable to Class 1 (employee and employer) National Insurance contributions.

Please contact us on 01275 852 255 for personal advice on your own affairs or should you wish to discuss any of the above in more detail.

2018-01-29T13:45:14+00:00March 12th, 2018|