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Pocklington: 01759 305165
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Treatment of termination payments

Source: HM Revenue & Customs | | 10/04/2018

With effect from 6 April 2018, employers will need to pay income tax and Class 1 national insurance contributions (NICs) on certain parts of termination payments made to employees whether or not these payments are contractual. The element that is liable to taxation is the amount of the termination payment that represents a payment in lieu of notice, commonly referred to as 'PILON'. The measure will mean that all PILONs rather than just contractual PILONs will be treated as taxable earnings.

In addition, all employees will pay income tax and Class 1 NICs on the amount of basic pay that they would have received if they had worked their notice in full, even if they are not paid a contractual PILON. This means that the tax and NICs consequences will be the same for everyone and will not be dependent on how an employment contract is drafted or whether payments are structured in some other form, such as damages.

The changes apply to payments, or benefits received on, or after, 6 April 2018 in circumstances where the employment also ended on, or after, 6 April 2018. Foreign service relief on termination payments has also been removed for all UK residents, apart from seafarers from 6 April 2018.

Planning note

The introduction of employer NICs on termination payments above £30,000 and on sporting testimonials of more than the £100,000, which were also expected to take effect from 6 April 2018, is delayed until 6 April 2019.



Hull Office

1 Parliament Street
Hull
East Yorkshire
HU1 2AS
Tel: 01482 224763
Fax: 01482 214874

Pocklington Office

7 Lockwood Court,
Market Place,
Pocklington,
YO42 2QW
Tel: 01759 305165
Fax: 01759 305985

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