On 6 April 2018, HMRC updated its Employment Income Manual to address the changes (taking effect from the same day) to the taxation of termination payments.
Broadly, in cases where a payment in lieu of notice (PILON) (whether contractual or non-contractual) is made on or after 6 April 2018 and employment is terminated on or after 6 April 2018, it will be necessary for employers to identify (and tax appropriately) any non-contractual PILON which would not have been taxed under the pre-6 April rules.
The new requirements, again broadly, require employers to calculate “post-employment notice pay” (PENP). This is the amount of “basic pay” the employee will not receive because employment is terminated without proper notice. The employee’s PENP is taxed and subject to employee and employer NICs. The remainder of any termination award is only taxable to the extent it exceeds £30,000.
The updated Employment Income Manual can be viewed here.