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

Manchester 0844 800 8346

Pall Mall Court
61-67 King Street
Manchester M2 4PD

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

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

You might also be interested in...

Legal expert’s data protection workshops pull in the crowds

22nd May, 2018

With the General Data Protection Regulation (GDPR) coming into force in May, businesses across Shropshire have been flocking to hear more about the new laws Paul Bennett, a partner at law firm Aaron & Partners LLP, has been delivering seminars in partnership with the Shropshire Chamber of Commerce An employment solicitor from Shrewsbury is urging businesses across the... Read More »

Experienced HR leader joins Aaron & Partners LLP

15th May, 2018

Experienced HR leader joins Aaron & Partners LLP Law firm with offices in Chester and Shrewsbury appoints Kate Robertson to drive HR strategy for more than 120 staff and to support the company’s growth Chester law firm Aaron & Partners LLP has strengthened its senior leadership team with the appointment of an experienced human resources manager. Kate Robertson... Read More »

When you should NOT pay the bailiff…

24th April, 2018

Jan Chillery, Insolvency Partner at Aaron & Partners LLP, shares her experience and the reasons why we should be cautious before paying so-called “bailiffs” over the phone or online without vetting them first. My neighbour has told me that recently he had a CCJ (County Court Judgment) against him. A day or so later, he received a phone call... Read More »

Contact Us