Reform of tax and NICs treatment of termination payments from 2018/2019

  The government has embarked on a series of reforms to the tax and NICs treatment of termination payments. The following changes will be taking effect:

• From 6 April 2018, all payments in lieu of notice (PILON) will now be treated as earnings (subject to tax and class 1 NICs). Accordingly, the tax treatment no longer depends on whether there is a PILON clause in the contract. Effectively, this means that employers will be required to subject to tax an amount equivalent to the employee's basic pay if and to the extent that notice is not worked.

• From 6 April 2019, all termination payments above the £30,000 threshold will now also be subject to Employer class 1A NICs (employer liability only).

• From 6 April 2018, HM Treasury are able vary the £30,000 threshold by regulations. This means there is the potential in the future for the £30,000 to be increased.

If you would like advice on drafting a settlement agreement contact Hina Belitz on 0207 374 6546 or email hina@partnerslaw.co.uk