Taxation of Termination Payments

From 6 April 2018 a new regime will be introduced in relation to the taxation of termination payments. The reforms provide for: 

  • A new approach to the taxation of pay in lieu of notice, with the objective that all payments in lieu of notice, whether contractual or not, should be chargeable to tax.
  • A decision to maintain the tax exemption for the first £30,000 of a termination payment which is not otherwise taxable. 
  • The treatment of injury to feelings awards.
  • The removal of foreign service relief in most situations.
  • From 6 April 2019, the introduction of employer national insurance contributions on payments in excess of the first £30,000 tax free amount.

In order to explain these reforms, we have prepared a podcast which provides some worked examples showing how the reforms will operate in practice.