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Proposed Changes to Taxation of Termination Payments
On 10th August 2016 the government published responses to its 2015 consultation on simplifying the taxation of termination payments, together with draft legislation for further consultation.
The consultation confirms that, from April 2018, the government will make significant amendments to the current system to:
- remove the distinction between contractual and non-contractual Pay In Lieu Of Notice payments (‘PILONs’), meaning that all such payments will be treated as earnings subject to income tax, employer and employee National Insurance Contributions; and
- retain the exemption from income tax and employers’ and employees National Insurance Contributions for payments relating to termination up to the current threshold of £30,000; and
- align the rules for income tax and employers’ National Insurance Contributions so that employers’ National Insurance Contributions will be payable on payments above £30,000.
There will also be changes to the Foreign service relief system, and legislation relating to payments for injury to feelings.
These changes should all serve to simplify the taxation of termination payments.
If you have any questions about a proposed settlement offered by your employer, or require advise on offering a settlement to an employee, please contact Lucy Thomas at our Cockfosters office on 020 8441 1556 or by email on email@example.com