Simplification of the tax and National Insurance treatment of termination payments

11 August 2016

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. A consultation on the draft legislation has now been published.

Geographical extent - This regulatory change will apply to all four nations of the UK.

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

The draft legislation is intended to give effect to the changes and the government invites views on whether this objective is achieved. The closing date for responses is 5 October 2016.

CIPP comment

The CIPP will be studying the draft regulations and will, as usual, seek member views where appropriate.

Read the CIPP response to the Summer 2015 consultation.