Following the consultation launched last July, it was widely anticipated that the Chancellor would introduce significant changes to the £30,000 “tax free” treatment of payments made on termination of employment. Yesterday, it was announced that employer’s NICs, as well as income tax, would be payable on the amount of the termination payment exceeding £30,000. However, employee’s NICs will not be payable on this amount.
It was also announced that tax will be payable on all payments in lieu of notice (and not just those subject to a contractual PILON) and on some damages payments.
These changes will take place in April 2018, and further details will be available later this year once a technical consultation is launched.
Employers looking to restructure their businesses (particularly where senior employees are involved) or make large-scale redundancies during 2018 are likely to try to bring these projects forward into the 2017-2018 tax year. Generally, it is likely that termination payments will reduce overall as employers look to minimise the overall cost of settlement packages.
The Chancellor announced vague plans for changes to salary sacrifice schemes, announcing that it is considering limiting the range of benefits that attract income tax and NICs advantages available via these schemes. However, it is clear that salary sacrifice arrangements relating to pensions, childcare and health-related benefits such as Cycle to Work will continue to benefit from tax relief.
The Government is also planning to toughen the rules on the use of contractors in the public sector. Many individuals work through their own limited companies when providing services to the public sector, and although current legislation requires them to pay broadly the same taxes as employees, non-compliance is rife. The Government estimates that it is losing around £440 million each year in unpaid taxes. From April 2017, public sector bodies (or the recruitment agency if workers are supplied via an agency) will have the responsibility for ensuring that the individuals working for them under these arrangements are paying the right tax. It is recognised that the current rules are complex, and so the Government will consult on a simpler set of tests and online tools to assist the public sector in deciding whether the tax rules apply.
None of these changes is immediate, so HR professionals should keep an eye on our regular bulletins for further information as these proposals develop.
If you require further advice or information, please contact Louise Connacher or our resident tax expert, Melanie List.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.