Following on from its technical consultation over the summer, the government has announced that it will continue with its proposed simplification of the termination payment regime, retaining the £30,000 exemption but subjecting amounts in excess of £30,000 to employer’s national insurance with effect from April 2018.

In an attempt to simplify the proposed changes it has also been announced that tax will only be applied to amounts (that would otherwise have fallen to be taxed as termination payments) which equate to an employee’s basic pay if their notice period is not worked. This is a welcome change as the draft legislation released during the summer went much further than this, taking into account benefits in kind and potential bonus income, resulting in a mechanism that was both complicated and uncertain for employers to apply.