HMRC has published its draft legislation concerning the proposed changes to the taxation of termination payments. The changes are expected to come into force in April 2018 as consultation on the proposed legislation continues until 5th October 2016.
The proposed changes are to make all PILON payments taxable and subject to class 1 NIC’s deductions irrespective of how they came about or the terms of the contract. They also include retaining the £30k tax free termination payment exemption but subjecting all sums over this to NIC’s which does not currently happen. There is no mention of any increase in the £30k tax free amount which has been at that level for sometime now.
The legislation also aims to end the difference in judicial opinion on the tax treatment of injury to feelings awards. The proposal is that these will also be taxable also. If you wish to see the full details or comment on the consultation you can do so here.
These changes will have a big impact on settlement agreement packages for employees although the tax treatment of payments can cause a lot of confusion for employers not knowing what to do so this will simplify that element at the detriment of the parties though.