Tax and NICs treatment of termination payments.

29 Jul Tax and NICs treatment of termination payments.

On 24 July 2015, the government launched a consultation on simplifying the rules concerning the treatment of termination payments. Proposals include removing distinctions between types of payment, replacing the current £30,000 allowance with an exemption for redundancy (voluntary or compulsory) at a rate rising in line with length of service, new exemptions for wrongful dismissal, unfair dismissal or discrimination whilst retaining existing illness, disability and armed forces exemptions.

Conversely, some will be disadvantaged under the proposals. For example, those with under two years’ service will be disadvantaged in the proposals, with the effect for those with longer service depending on the rates of exemption set.

Simplification in this area is long overdue and the proposals will hopefully lead to greatly reduced burdens on those determining the tax position at a stressful time. Perhaps more importantly, employees will welcome the news that unfair and wrongful dismissal, as well as redundancy, are to benefit from exemption.