Chester 01244 405555

Grosvenor Court
Foregate Street Chester
Cheshire CH1 1HG
DX: 19990 Chester

Shrewsbury 01743 443 043

Lakeside House
Oxon Business Park
Shrewsbury SY3 5HJ
DX: 148563 Shrewsbury 14

Airport City, Manchester 0844 800 8346

Office 129
Manchester Business Park
3000 Aviator Way
Manchester M22 5TG

Send us a message
Our Offices

The rules on Taxation of Termination Payments have changed

10th April, 2018

New rules on the taxation of termination payments came into effect on Friday 6 April 2018. These rules are part of the Finance Bill 2018 and their purpose is to tighten and simplify the tax treatment of termination payments.

As of 6 April 2018, the following will be subject to tax and NICs:

  • Post Employment Notice Period (“PENP”): Even if an employee doesn’t work their notice period (for whatever reason) and irrespective of whether there is a payment in lieu (PILON) clause in their contract of employment, an employer will still need to pay tax and NICs on any payment which relates to earnings the employee would have received had he/she worked their notice.
  • Employers will need to follow the PENP formula to ensure that the tax is correctly calculated. This includes any payment or benefits that the employee would have received during their notice period or before their employment ended. For example, an expected bonus or car allowance during their notice period.

The first £30,000 of non-contractual termination payments are still tax free, with any balance over £30,000 subject to tax. However, the government now has the power to increase or decrease this £30,000 figure.

Employers will now need to break down the different elements of a settlement package and consider whether each part is taxable. As a result, the changes may add to the cost of a settlement agreement and reduce the amount being offered by employers.

If you wish to find out more about taxation of termination payments or any other employment law matters, please contact Adam Haines in our specialist Employment Law Team.

Adam Haines
Adam Haines

Associate in Employment Law
Email: [email protected]
Tel: 01244 405414

You might also be interested in...

Ethics Guidance – Transparency in Price and Service

16th November, 2018

It is reported that a quarter of all complaints dealt with by the Legal Ombudsman revolve around costs therefore to avoid complaints and confusion, it is important to be clear from the outset. The new Transparency Rules (which the SRA have now confirmed will come into effect on 6 December 2018) require that accurate and relevant information is... Read More »

Aaron & Partners Increases Recommendations in Leading Industry Guide, The Legal 500

5th November, 2018

Aaron & Partners LLP has once again seen improved rankings in The Legal 500 – a comprehensive guide... Read More »

Mental Health and Stress in the Workplace – 3/3

10th October, 2018

In the lead up to World Mental Health Day on 10 October 2018, we have been posting a series of short articles discussing mental health and stress in the workplace. In this final article, we will be providing tips, to employers and employees, for managing stress and dealing with mental ill health in the workplace. Click here to... Read More »

Contact Us