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Proposed changes to taxation and termination payments

There is a generally widespread (frequently mistaken) belief that the first £30,000 of any payment made in connection with termination of employment is tax-free.  The confusion around the entitlement and the complexity of the legislation leads to a number of anomalies and the Government is minded to simplify the position.  A consultation was published last year and the response to this has recently been issued by HMRC.  It seems likely that the basic changes that will take effect from April 2018 are:-

  • Payments in lieu of notice will be subject to income tax and national insurance;
  • Any post-employment payments which would have been treated as earnings had the employee worked the notice period will also be subject to tax and national insurance; and
  • A £30,000 exemption for payments relating solely to termination of employment will continue for income tax together with a full exemption from employees national insurance on the entire sum.  Employer national insurance contributions will only be exempt in relation to the first £30,000.



Date: 26th September, 2016
Author: Cathy Corns


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