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Changes To The Taxation Of Termination Payments

New legislation comes into force in April, 2018 ...



Up until now, termination payments have been taxed very efficiently. The first £30,000 of a non-contractual payment is exempt from tax and there's no liability for NI either. But from April 2018, that's all going to change ...

Non-contractual termination payments will be subject to tax and NI from April, 2018!

Non-contractual termination payments will be subject to tax and NI from April, 2018!

copyright: andreypopov / 123rf stock photo

Following the change in April, tax and national insurance are due on any non-contractual payment in lieu of notice that is not a statutory redundancy payment.

"The change is for termination payments where the award is made on or after 6 April 2018!"

Thankfully, HMRC confirmed that where the termination was made before 6 April 2018, but paid after 6 April 2018, the pre 6 April 2018 rules will still apply.

There is a further change to termination payments, which amends foreign service relief. Currently, if a termination payment is made to a UK resident individual, and the individual satisfies the foreign service relief conditions, the termination payment is not subject to tax.

Under the new legislation, any payments made after 13 September 2017 will only be exempt if:

  • The individual is non-resident in the tax year of termination

  • The payment is in respect of a change of duties with the same employer

As with most anti-avoidance measures, it is likely that HMRC will monitor how these changes are operated and, if misuse of the rules is detected, additional changes can be expected.

The spring Budget 2017 proposals also stated that a new power will allow the Treasury to move the £30,000 exemption threshold upwards or downwards.

"Although the £30,000 exemption remains intact, the circumstances have been restricted to genuine redundancy situations only!"

If you'd like to know more about termination payments and whether your business will be affected by the new legislation, do call me on 01908 774323 or click here to ping me an email and let's see how I can help you.

Until next time ...


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More about Helen Beaumont ...

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.