Following a consultation that took place over the summer, the government confirmed that the £30,000 tax free exemption on termination payments would be retained. However, from April 2018 certain payments will no longer fall within the allowance.
It has been confirmed as part of the recent Autumn Statement that from April 2018 termination payments over £30,000, which are subject to Income Tax, will also be subject to employer NICs. Non-contractual termination payments of up to £30,000 will continue to remain exempt from Income Tax and employer NICs. The government will monitor this change and address any further manipulation of those making termination payments.
In addition, from April 2018, it will become irrelevant whether a payment made in lieu of notice is contractual or discretionary. These payments will be subject to deductions for tax and NICs as earnings. In addition, 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. These changes will have a direct cost for employers offering significant termination packages.