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Taxation of Termination Payments

Taxation of Termination Payments

Following a consultation process, it was confirmed in the Spring Budget that the reform of the tax rules relating to termination payments will take effect from 6 April 2018 and will include the following:

– All contractual and non-contractual payments in lieu of notice (PILONs) will be taxable as earnings;

– The first £30,000 of a genuine termination payment will remain exempt from income tax and NICs;

– The NIC rules will be aligned with the tax rules so that employer NIC will be payable on the elements of the payment exceeding £30,000;

Overall, the rules relating to termination payments have been clarified and tightened. It is good news that the £30,000 exemption remains intact but the circumstances in which the exemption applies will in essence be restricted to genuine redundancy situations.

What is clear is that this will remain a contentious area on which specialist advice will still be needed.

For more information, please contact Lesley Sutton on 01484 550037 or email

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