CIPP response to consultation on simplification of tax and NI treatment of termination payments

04 October 2016

4 October 2016

The CIPP has submitted its response to the consultation on draft legislation for the simplification of the tax and National Insurance treatment of termination payments.

It was announced at Budget 2016 that legislation would be included in Finance Bill 2017 to tighten and clarify the rules on which types of payments will be treated as salary and which will be subject to the termination payment rules.

The changes which are due to come into effect in April 2018 include:

  • clarifying the scope of the exemption for termination payments to prevent manipulation, by making the tax and National Insurance contributions (NICs) consequences of all post-employment payments consistent
  • aligning the rules for income tax and employer NICs so that employer NICs will be payable on payments above £30,000 (which are currently only subject to income tax)
  • removing foreign service relief
  • clarifying that the exemption for injury does not apply in cases of injured feelings

The government analysed the responses to its consultation on termination payments held in summer 2015 and set out its response and consultation on draft legislation.

The draft legislation is intended to give effect to the changes and the government invited views on whether this objective is achieved.  The CIPP Policy & Research team published an electronic survey to collect views on this consultation document.  There were 59 responses to the survey.

On the whole the respondents agreed with the definitions and terminology proposed in the draft legislation, although there were those who believed that it is still too complicated.

The consultation also gave respondents an opportunity to suggest other elements of termination payment legislation which could be addressed and several suggestions were received such as reviewing the £30,000 limit.

CIPP response to consultation on simplification of tax and NI treatment of termination payments - October 2016