Phone: 01242 260066 | Email accountants@mitchells.org

Changes to termination payments could increase employer tax liability

10 Apr 2018

Recent changes to payments in lieu of notice (PILONs) could mean further tax is due from employers when employees leave.

Under previous rules, an employer could pay up to £30,000 on termination, free of tax where there were no contractual PILONs in place. In these cases the termination was treated as damages for breach of contract. There was also no national insurance due on this amount. This resulted in a significant amount of tax savings for employers.

However, from 6 April 2018, all PILONs are now treated as earnings and are therefore subject to tax and national insurance.

The new legislation is based on the employee’s basic pay excluding any salary sacrifice arrangements, and is due on the Post Employment Notice Pay (PENP). This legislation requires tax to be paid on termination payments if the employee leaves early, regardless of why they leave early. The balance on the termination payment will be exempt from income tax if below £30,000.

Furthermore, Foreign Service Relief has been abolished and exemption from tax for payments for injury and disability do not apply to injury to feelings.

Try a site search Tax returns, budget, pension, rates and allowances...

Contact details

Office: 01242 260066

Company Registration No: 4161638
Company Registered in England and Wales.
Company details
Mitchell Glanville Limited
Registered Address: 41 Rodney Road, Cheltenham, Gloucestershire GL50 1HX

Mitchell Glanville Limited regulated by the Institute of Chartered Accountants in England and Wales If, during the provision of professional services to you, you need advice on investments, we may have to refer you to someone who is authorised by the Financial Conduct Authority, as we are not. However, as we are licensed by the Institute of Chartered Accountants in England and Wales, we may be able to provide certain investment services where these are complementary to or arise out of the professional services we are already providing to you.

© 2024 Mitchells Chartered Accountants. All rights reserved. We use cookies on this website, you can find more information about cookies here.