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Consultation on termination payments

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HMRC is consulting until 5 October 2016 on a first draft of Finance Bill 2017 legislation for the changes to the treatment of termination payments announced at Budget 2016. These changes will take effect from April 2018. The document also contains details of the government’s response to its 2015 consultation, which set out the original proposals.

The following rules will apply from April 2018:

·         all PILONs will be subject to tax and NICs as earnings;

·         all other post-employment payments which would have been treated as general earnings if the employee had worked their notice period will be subject to tax and Class 1 NICs, including employer’s NICs; and

·         payments relating directly to the termination of the employment will have a £30,000 income tax and employer NICs exemption. There will be continue to be an unlimited employee NICs exemption on termination payments.

Changes to the exemptions for termination payments will:

·         remove foreign service relief; and

·         clarify that the exemption for injury does not apply in cases of injured feelings because of the divergence of judicial decisions about this issue.


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