Following a consultation earlier this year and consideration of the responses received HMRC has published a further consultation paper containing draft legislation on the taxation of payments received on termination of employment..
The government has confirmed that from April 2018 the first GBP 30,000 of a termination payment will continue to be exempt from income tax and that payments made to the employee relating solely to the termination of employment will continue to be exempt from national insurance contributions.
The proposed changes include clarification of the scope of the exemption for termination payments. The consequences in terms of tax and national insurance contributions (NICs) payable would be consistent for all types of payment received on termination of employment. The rules for income tax and employer’s NICs would be better aligned to ensure that the employer would be liable to NIC on all payments over the GBP 30,000 exemption limit.
Other changes include the removal of the foreign service relief and clarification that the exemption for injury does not apply in cases of injured feelings. On the latter issue judicial decisions have diverged and the government is therefore clarifying the position.
Comments are invited on whether the draft legislation successfully gives effect to the proposed changes. The closing date for responses is 5 October 2016.
