CIPP response to the consultation on simplifying the tax and NIC treatment of termination payments

16 October 2015

The CIPP Policy Team has issued its response to the government’s consultation on simplifying the tax and NIC treatment of termination payments.

An electronic survey was issued to CIPP members and 52 replies were received which form the basis of the response.

Summary of key findings

56% agreed that the distinction between contractual and non-contractual termination payments should be removed with many suggesting that this would simplify the process.
80% agreed that removing the different tax and NIC treatment of different types of PILONs would help remove complexity for termination payments.
78% welcomed the suggestion that tax and NIC treatment be aligned, believing that alignment would make termination payments easier to administer and easier to understand.
However there is a concern that aligning NIC with tax would incur more cost for employers.
Only 36% believe that relief based on length of service would be easier for employers to administer, with most feeling this would reintroduce the complexity that these proposals are aiming to reduce.
The majority of respondents believe that the new exemption threshold should be £30,000 in line with the existing threshold though several respondents feel the threshold should in fact be raised to £50,000.
Just over a third of respondents believe that basing termination payments on length of service and redundancy will be easier for employees to understand.

Conclusion

Whilst members agree that the distinction between contractual and non-contractual termination payments should be removed, and that removing the different tax and NICs treatment of different types of PILONs would help remove complexity for termination payments, members are not convinced that the proposed exemption is any more straight forward, with many suggesting that one complexity is simply being replaced with another.

Furthermore, if the NI treatment were to be aligned with the tax treatment this would simply incur more cost for the employer, and there is concern amongst some respondents that this proposal, far from being a move to remove complexity, is simply a method of raising more revenue.

Recommendations

The CIPP recommends that the government pursues its stated aim of simplification by removing the differentiation between contractual and non-contractual termination payments, and aligning the tax and NIC treatment of these payments. However to ensure that any reforms are clearly understood and easy to administer, the government should work with all stakeholder groups to ensure that the reforms are supported by clear, unambiguous guidance which is available to both employers, employees and their representatives well in advance of the introduction of any changes.

The full consultation response is available to view through the link below.

Up to date details of all consultations and associated surveys and responses can be found under Membership/My CIPP/ Policy Think Tank on the CIPP website.