Significant Changes to Termination Payments

Consultations published at last Summer’s budget has suggested removing the distinction between contractual and non-contractual termination payments for tax purposes.  If these had been implemented , the proposals would have required fundamental changes to the existing rules.

Instead, legislation will be introduced in the 2017 Finance Bill to alter the rules on the taxation of termination payments, so that all payments in lieu of notices (sometimes known as PILON’s), and some damages payments will be treated as taxable employment income.

It is also proposed that a future NIC bill to be presented to Parliament in 2018 will align the rules on income tax and NIC so that payments in excess of the £30,000 limit set out in Income Tax (Earnings & Pensions) Act 2003, s 404 will also be subject to NIC.

A technical consultation will be launched over the summer concerning both of these changes.