Employment tax changes – what employers need to know

Changes to termination payments 2018/19

Looking forward to 6 April 2018, there are changes to the taxation of termination payments. These have been introduced to bring ‘fairness and clarity’ to what has been a complicated and widely misunderstood area.

The main change is that from this date, all Payments In Lieu of Notice (PILONS) will be treated as earnings from employment.

This is contrasted with the current position, whereby contractual PILONS are fully taxable as employment earnings, whilst non contractual payments, when considered to have their roots solely in the termination of the employment, are not, thereby falling within the £30,000 exemption for termination payments.

A further change is that the current Foreign Service relief, which allows for any otherwise taxable element of a termination payment to be completely or partially exempted where it’s attributable to a period of overseas service, will be largely withdrawn.

There are no changes to the exemption for payments made as a result of death, injury or disability.

There are also National Insurance contribution (NIC) changes on the horizon, though these have been postponed until April 2019. From then on, an employer will be required to pay Class 1 NICs on any part of a termination payment that exceeds the £30,000 exemption.

Optional remuneration

It’s worth remembering that whilst there are widespread exemptions to the provisions introduced with effect from 6 April 2017, some salary sacrifice and other remuneration arrangements may already, or will in future, be caught by them. If so, the resultant taxable benefit, based on the higher of the value of the benefit or the cash foregone, needs to be considered when completing forms P11d for 2017/18 as well as in discussions with employees about the profile of their ongoing remuneration package.

For further advice on how this may impact on any future negotiations with employees or prospective employees, please contact a member of the employment solutions team.

Need help?

For more information on how we can help, please speak to your usual  Larking Gowen contact.

Call 0330 024 0888 or email enquiry@larking-gowen.co.uk

Tessa Brown