HMRC plan to simplify taxation of termination payments
HM Revenue & Customs has published draft legislation which will change the taxation of termination payments. The key changes are:
• all PILONs (payments in lieu of notice) will be taxable, even if they are non-contractual;
• require payment of employer NICs on sums over £30,000 (not currently payable);
• ensuring payments for injury to feelings are subject to tax.
Whilst these changes will provide certainty regarding the tax treatment on notice pay it may mean that an employee’s overall payment will be reduced and therefore employers may have to increase the termination payment in order to make the offer more attractive to the employee. The first £30,000 of a non-contractual termination payment will continue to be tax free. The changes are intended to come into force April 2018.