Currently, employees may receive the first £30,000 of any
termination payment free of income tax and national insurance
contributions (NICs) as long as they are not receiving a payment
pursuant to their contract of employment.
It was announced in March 2016 that termination payments which
are subject to income tax on any amount in excess of £30,000
would, in the future, also be subject to employer NICs. HM Revenue
and Customs (HMRC) has now published draft regulations which
introduce changes that will be part of the Finance Bill 2017 and a
future National Insurance Contributions Bill. The following changes
are expected to apply from April 2018:
all payments in lieu of notice will be treated as earnings and
will be subject to income tax and NICs regardless of whether they
termination payments in excess of £30,000 will be subject
to employer NICs, but the whole termination payment will remain
outside the scope of employee NICs;
payments for "injury to feelings" will be excluded
from the general exemption for injury payments, except where they
relate to a psychiatric injury or a recognised medical condition;
the foreign service exemption (for employment outside the UK)
will be abolished (with the exception of seafarers).
The good news is that the changes are likely to streamline this
previously complex area and make it more simple. The continuing
benefit for those receiving a termination payment, according to the
draft legislation, is that the first £30,000 of any payment
received will remain free from income tax and no part of their
termination payment will be subject to employee NICs.
The precise wording of the draft legislation is open for
consultation until 5 October, however the proposed developments may
make terminating employment more expensive for employers for two
reasons. First, employers are likely to experience increased
liability for NICs. Second, employers may have to offer increased
financial packages to counter the lower net figure exiting
employees are likely to receive under the new proposals. Therefore,
we may see any planned terminations brought forward in order to
benefit from the current regime until April 2018.
Dentons is the world's first polycentric global law firm. A
top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm
is committed to challenging the status quo in delivering consistent
and uncompromising quality and value in new and inventive ways.
Driven to provide clients a competitive edge, and connected to the
communities where its clients want to do business, Dentons knows
that understanding local cultures is crucial to successfully
completing a deal, resolving a dispute or solving a business
challenge. Now the world's largest law firm, Dentons'
global team builds agile, tailored solutions to meet the local,
national and global needs of private and public clients of any size
in more than 125 locations serving 50-plus countries.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
During the briefing, Partner Ladislav Smejkal, Head of Dentons’ Litigation and Criminal Law practice in the Czech Republic, will discuss the new rules, in particular in relation to the role of compliance and possibility for legal entities to absolve themselves from criminal liability in light of the Supreme State Prosecutor’s new methodology.
This talk will look at issues and practices arising under English law in pre-contractual negotiations including the duty to act in good faith, the legal status of a memorandum of understanding and some practical points to ensure that your memorandum of understanding is, or is not, legally binding.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).