Termination of employmentTerms of employment

Termination Payments – New Liability for Tax and National Insurance

The exemptions from paying tax on termination payments, especially pay in lieu of notice, have been reduced significantly as of 6th April 2018 and made more complex in some instances.

photo of Big Ben and Houses of Parliament
Tax Increases on Termination of Employment

Take a quick quiz to see if you need to read more about the changes.

  1.  Are non contractual payments in lieu of notice taxable?
  2.  If an employee or an employer terminates employment before the end of the proper notice period, are any payments in lieu of that notice taxable?
  3.  What is post employment notice pay?
  4.  Is post employment notice pay taxable?
  5.  Is basic pay only or all pay taxable if categorised as post employment notice pay?

How well did you do?    The answers are:

1  Yes – taxable in most instances.

2  Yes – the amount of pay that would have been received, if notice had been worked properly, is taxable.

3  Read the article below to find out more.

4  Yes – it is taxable.

5  Basic pay only is taxable but any am0unt that is deducted under a salary sacrifice scheme is counted as basic pay.

Read more on this aspect of termination of employment so that you do not unwittingly increase your costs.  You will also be more prepare to consider other options when making such decisions or outlining the liabilities to managers and staff in a termination situation.

Read our article on LinkedIn – ‘Termination Payments are Alive and Kicking

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