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Termination payments consultation

Newsletter issue - October 2016.

Following a recent consultation, the Office for Tax Simplification (OTS) is currently consulting on proposed changes to the tax and National Insurance Contributions (NICs) treatment of termination payments.

The current rules governing termination payments are complex and are sometimes open to manipulation by employers to take advantage of the employer NIC exemption in particular. Employers sometimes attempt to change the nature of payments so that they effectively become exempt termination payments, where strictly, they should be charged to tax and NICs.

The proposed changes are therefore designed to provide certainty for employers and employees, whilst being fair, simple to implement, and not open to abuse or manipulation. At present, the government is proposing the following changes, which if enacted, will take effect from April 2018:

The government's consultation response document and the draft legislation can be found online https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/549630/Simplification_of_the_tax_and_National_Insurance_treatment_of_termination_payments-government_response_and_consultation_on_draft_legislation.pdf .