Changes to taxation of termination payments

Apr 16, 2018

HMRC has asked us to share their communication on the changes to termination payments which took effect from 6 April 2018.

Termination payments made on, or after, 6 April 2018

We would like to confirm that new rules for termination payments made on, or after, 6th April 2018 have come into effect and that guidance is now live on Gov.UK

Payments in lieu of notice

Changes to the taxation of non-contractual payments in lieu of notice (PILONs) came into effect from 6 April 2018. All payments in lieu of notice on, or after 6 April 2018 are chargeable to income tax and Class 1 National Insurance Contributions (NICs), whether or not they are contractual payments. Detailed guidance can be found in the Employment Income Manual on Gov.UK

Foreign Service relief

Foreign Service relief on termination payments has been removed for UK residents from 6 April 2018. Employees whose employment terminated on, or after, 6 April 2018 and who receive a payment or benefit in connection with that termination will not be eligible for tax relief in respect of any period of foreign service undertaken as part of their office or employment if they are UK resident for the tax year in which their employment is terminated. Seafarers remain eligible for Foreign Service relief. Detailed guidance can be found in the Employment Income Manual on Gov.uk.

Link to Employment Income Manual: https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim13874

Link to National Insurance Manual: https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim02555

END OF HMRC COMMUNICATION