At our recent seminars, we flagged the UK government’s plans to change the tax treatment of termination payments from April 2018. Under its proposals, payments in lieu of notice will be fully taxable irrespective of whether there is a PILON clause in the employment contract. Furthermore, employer National Insurance contributions will be payable on termination payments above £30,000 (compensation payments would still be free of employee National Insurance contributions, even if they exceed £30,000). This means it would be more expensive for employers when pitching settlement offers where they do not have PILON clauses in their contracts and/or they make high value compensation payments on top of any PILON.
These new provisions were contained in the Finance Bill 2017. This has been fast-tracked through Parliament in order to get it into force before Parliament is dissolved on 3 May in readiness for the General Election on 8 June. During the debate this week the government dropped the termination payment provisions as well as a raft of other proposed tax changes from the bill. This seems to be in response to concerns about rushing through a large number of tax changes without proper parliamentary scrutiny.
But this is not the end of the story. We anticipate that as these provisions were not due to come into force until April 2018, and as the tax-take which they represent is so badly needed by the Treasury, they will be enacted in some form shortly after the election, regardless of who wins. We will keep you posted.
The bill received Royal Assent yesterday.