Employment Tax Changes

The Finance Act (No 2) Act 2017 has introduced a number of amendments in relation to the tax treatment of termination payments. The changes apply where the employment ends on or after 6 April 2018 and the key amendment of note relates to the taxable status of payments in lieu of notice (PILONs).

Previously, if the contract of employment did not have a PILON clause it was possible to pay the PILON without deduction of tax. From 6 April all PILONs, not just contractual PILONs, will be treated as taxable earnings, which means that:

  • tax and Class 1 National Insurance Contributions (NICs) will be payable on the basic pay the employee would have received if they had worked their notice in full, even if there is no contractual right to make a PILON; and
  • the tax and NICs consequences will no longer depend on how the employment contract is drafted or whether payments are structured in some other form, such as damages.

Furthermore, it is proposed that, from 6 April 2019, employer NICs will be payable on termination payments above £30,000.

If you have any questions on the above or any aspect of employment law, please contact Debbie Sadler on d.sadler@hewetts.co.uk or on 0118 957 5337.

Published on 12/04/2018

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