Changes to tax treatment of termination payments

Settlement Agreement Tax

The Autumn statement and 2016 budget announced some changes to the tax treatment of the termination payments. The current threshold of £30,000 will be retained but employer NI contributions will be payable on payments above £30,000 from April 2018

The Government are also looking at taxing an employee’s basic salary if notice is not worked i.e. notice payments will be taxed when paid as a PILON irrespective of any contractual term. This is likely to be detrimental to employees as they will lose money they would have otherwise retained but also to employers who will need to pay tax and presumably their employer’s national insurance contributions on those sums.

I would anticipate that as a result we will see this filter into the packages paid to employees on termination.