The UK government has published a consultation document on draft legislation which is intended to simplify the tax and national insurance treatment of payments on termination of employment. The purpose of the consultation is to explore whether the draft legislation works as intended. The document also contains the government's response to the 2015 consultation on the tax and NIC treatment of termination payments.
The key points are:
- The first £30,000 of a termination payment will remain exempt from income tax;
- Employer national insurance contributions (NIC) will be payable on all payments above £30,000 (but no employee NIC will be payable);
- All payments in lieu of notice will be taxed as earnings (i.e. both contractual and non-contractual);
- Payments for injury to feelings would not come under the exemption for payments made on account of injury.
The new regime is expected to take effect in April 2018. The closing date for comments on the draft legislation is 5 October 2016.