In response to a report by the Office of Tax Simplification, the government has announced a consultation on simplifying the tax and national insurance treatment of termination payments.
Current position
At present, the first £30,000 on any non-contractual termination payment is free of tax and national insurance contributions (NICs) but this could be about to change.
Proposals
The government’s proposals include:-
• removing the distinction between contractual and non-contractual payments
• removal of the current £30,000 exemption and introduction of a tax free amount which would increase in proportion to an employee’s length of service
• make injury to feelings awards, usually tax free, subject to tax for some or all of the award
• introduce a two year qualifying period before an employee is entitled to benefit from a tax free payment
Calculations
By way of example only, the government has made reference to a £6,000 tax-free sum which would be applicable once an employee has been employed for over two years. This would then increase by £1,000 for each additional year of service.
The consultation document can be accessed by clicking here and the consultation is open for comments until 16 October 2015. Further details will follow once the consultation is concluded and any new tax position implemented.
If you wish to speak to one of our experts, please do not hesitate to contact a member of our Employment team on the details below.
Mark Hirst: mhirst@bromleys.co.uk
Nicholas Clough: nclough@bromleys.co.uk
Rachael Frankland: rfrankland@bromleys.co.uk
Telephone: 0161 330 6821
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.