HM Treasury and HMRC have published a consultation dealing with simplifying the tax and NIC treatment to be applied to termination payments. In recent years, the existing system has come under criticism from employers and employees alike, for being overly complex and uncertain.

Views are sought on removing the distinction which applies to contractual and non-contractual termination payments; new exemptions from income tax and NIC; whether tax and NIC treatments should be aligned; and, how the exemptions currently in place should be changed or amended. The consultation raises concerns about the affordability of introducing a blanket exemption and the avoidance opportunities such an exemption may provide. The paper expresses a preference for a graduated system designed to reward lower paid longer serving employees, as well as introducing new anti-avoidance provisions.

The closing date for comments on the proposals is 16 October 2015.

The consultation can be read here.