Simplification of the tax and National Insurance treatment of termination payments
LITRG has submitted comments to HMRC and HMT on draft legislation to simplify the income tax and National Insurance (NIC) treatment of termination payments. This follows an initial consultation in 2015, to which LITRG also responded. We thought that the proposals in the original 2015 consultation were unlikely to deliver genuine simplification for employers and employees. The draft legislation reflects revised proposals. We welcome the proposal to remove the distinction in treatment between the different types of payments in lieu of notice (PILONs). We are also pleased to see that the £30,000 threshold for the exemption for eligible termination payments will remain. In addition, employees will continue not to have an NIC liability on their termination payment.
We also take the opportunity to recommend that HMRC consider the impact that these changes will have on tax credits and universal credit, and call on HMRC to ensure that the changes are communicated to claimants, to ensure they treat termination payments correctly.
The consultation is available on GOV.UK.
Our submission can be found