Whilst there will not be any changes to the tax treatment of termination payments, the way that such payments are treated for PAYE purposes has changed.

Prior to 6 April 2011, if a termination payment (or any other payment of employment income) was made after the termination date and the issue of the P45 and was taxable (that is, it did not fall within the £30,000 exemption), the employer only had to deduct tax at the basic rate (currently 20%). The employee would then have to declare the amount of the termination payment in his tax return for the relevant tax year and pay any further tax due. The tax payment would therefore have been delayed, which was often useful to employees.

Last autumn HMRC announced that employers will no longer be able to offer this cash-flow advantage and tax must be deducted at the full rate.