Proposals aimed at simplifying the current tax treatment are likely to create new complications for employers as well as increased tax liabilities.
On 10 August 2016, HM Revenue & Customs published the latest document in their long- running attempt to simplify the tax regime applying to employee termination payments. This consultation document is entitled "Simplification of the tax and National Insurance treatment of termination payments". It sets out the changes to the current rules that the government is proposing to make, and contains draft legislation giving effect to the proposed changes. The proposed new legislation would apply to termination payments from April 2018.
Some of the changes will be helpful for companies, in that they clarify areas of the law which have been subject to litigation in the UK over the last few years. However, there are a number of radical changes, which if enacted would increase the tax liability for employees and the employer social security cost for companies. Also, the way that termination payments are apportioned between taxable and potentially exempt amounts will become far more complex for employers to work out, leading to an increased administrative burden, and increasing the risk of disputes with the HMRC.
A more detailed article, first published in the Tax Journal, setting out the UK Revenue's proposed changes, and our comments on these, can be accessed here.