• Facebook
  • Twitter
  • LinkedIn
Call us now: 01243 836 840   [email protected]
Pure Employment Law
  • Who We Are
    • Nicola Brown
    • Peter Stevens
    • David Jones
    • Debbie Poole
    • Linda Nye
    • Brenda Cherry
  • For Employers
    • Advice on HR and People issues
    • Investigations, Hearings and Appeals
    • Restructuring and Redundancy
    • Defending Employment Tribunal Claims
    • Dismissal of Senior Executives
    • Contracts, Handbooks and Policies
    • Employment Law Training
  • For Employees
    • Settlement Agreements
    • Workplace Issues including Disciplinary and Grievance
    • Bringing an Employment Tribunal Claim
  • Employment Law Events
  • Legal Updates
  • Testimonials
  • Vacancies
  • Contact us
  • Search
  • Menu Menu

Taxation of termination payments – changes to come

30th November 2015

In July we outlined the Government’s intention to enter into a period of consultation on proposals to simplify and make changes to the way payments made to employees on the termination of their employment are taxed. You can read that article here. That period of consultation has now ended, and perhaps not surprisingly, the proposals have not been viewed favourably by employers.

One of the main parts of the proposal was to do away with the distinction in tax treatment of contractual and non-contractual termination payments. In other words, the present position where the tax treatment of a payment in lieu of notice is determined by the inclusion or otherwise of a payment in lieu of notice clause in a person’s contract of employment would go. This must make sense, as in more cases than not it is simply a matter of luck whether the employee is entitled to receive a payment in lieu of notice tax free, or whether they have to pay tax on it.

The area which has caused most concern amongst employers is the removal of the £30,000 potential tax exemption and to replace it with a much reduced figure which would be based on length of service, and would only apply to redundancies and Tribunal awards. Employers often use some of the tax free allowance to effectively pay off employees rather than face Tribunal claims. From an employee’s perspective it is of course much more attractive to settle a potential dispute by receiving a payment, and if it can be paid without deduction a lower payment is going to be just as attractive as a higher payment which has to be taxed – in other words, it is the actual amount which the employee receives which is what matters.

Concern has also been expressed about tax free termination payments only being available in redundancy situations and where Tribunal awards are made. Redundancy is of course not the only type of no fault dismissal, with some business reorganisations not necessarily amounting to redundancy, plus of course ill health terminations would also not be eligible for tax free payments. Perhaps of more concern is the proposal that in other situations the employee would have to go to Tribunal and get an award in order to enjoy the tax free exemption, rather than be able to do a deal before going to Tribunal. This seems to fly in the face of the various changes to the law the Government has made to reduce Tribunal claims.

What does appear to be clear is that for many employees the amount of any tax free allowance will be significantly reduced from the current £30,000. It also seems that the proposed changes will not simplify the existing rules, but rather shift the complexity from examining the nature of a payment in lieu of notice to having to examine the reason for the termination.

We will have to wait and see what changes the Government makes as a result of the consultation and we will of course update you on these when they are available.

If you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).

Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.

 

Share this article
  • Share on Facebook
  • Share on Twitter
  • Share on WhatsApp
  • Share on LinkedIn
  • Share on Reddit
  • Share by Mail
https://www.pureemploymentlaw.co.uk/wp-content/uploads/2019/02/Pure-Employment-Law-logo.jpg 0 0 Nicola Brown https://www.pureemploymentlaw.co.uk/wp-content/uploads/2019/02/Pure-Employment-Law-logo.jpg Nicola Brown2015-11-30 11:41:502015-11-30 12:14:16Taxation of termination payments – changes to come

Join our mailing list

* = required field
Mailing Lists


Recent Legal Updates

  • Can long Covid be a disability? 29th June 2022
  • Employer unfairly counted disability-related absences when dismissing 29th June 2022
  • Did an Employment Tribunal correctly award an uplift for failure to follow the ACAS Code in a sham redundancy case? 29th June 2022
  • Without prejudice negotiations – what is unambiguous impropriety? 29th June 2022
  • Does referring to a man’s baldness at work amount to sexual harassment? 25th May 2022
Link to: Contact Us

Any questions? Why not get in touch!

Our advice is always given in plain English without any waffle, and we focus on providing practical solutions to our clients’ problems.

Contact us

LEGAL INFORMATION

Pure Employment Law | 1 Little London, Chichester, West Sussex, PO19 1PH
[email protected] | Tel: 01243 836840

Pure Employment Law is the trading name of Pure Employment Law Limited, registered in England and Wales with company number 07134294 and whose registered office is 1 Little London, Chichester, West Sussex, PO19 1PH. Pure Employment Law Limited is authorised and regulated by the Solicitors Regulation Authority with registration number 533794. A list of the company’s directors is available for inspection at the registered office

DISCLAIMER

The information contained in this website is for general information purposes only. The information is provided by Pure Employment Law and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

Privacy Policy | Cookies Policy | Terms & Conditions | How to make a complaint | Sitemap

© Pure Employment Law 2022

Scroll to top

This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies as defined in our cookie policy.

Accept Cookie Policy

Cookie and Privacy Settings



How we use cookies

We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

Essential Website Cookies

These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.

We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.

We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.

Google Analytics Cookies

These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.

If you do not want that we track your visit to our site you can disable tracking in your browser here:

Other external services

We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

Google Webfont Settings:

Google Map Settings:

Google reCaptcha Settings:

Vimeo and Youtube video embeds:

Other cookies

The following cookies are also needed - You can choose if you want to allow them:

Privacy Policy

You can read about our cookies and privacy settings in detail on our Privacy Policy Page.

Privacy Policy
Accept settingsHide notification only