Consultation outcome

Simplification of the tax and National Insurance treatment of termination payments

From:: HM Revenue & Customs
Published: 24 July 2015
Last updated: 10 August 2016 — See all updates

Detail of outcome

The government has analysed the responses to its consultation on termination payments held in summer 2015 and has set out its response.

The government announced at Budget 2016 that it would make changes to the taxation of termination payments.

The changes include:

clarifying the scope of the exemption for termination payments to prevent manipulation, by making the tax and National Insurance contributions (NICs) consequences of all post-employment payments consistent
aligning the rules for income tax and employer NICs so that employer NICs will be payable on payments above £30,000 (which are currently only subject to income tax)
removing foreign service relief
clarifying that the exemption for injury does not apply in cases of injured feelings

Consultation on draft legislation

The government has published a follow-up consultation on draft legislation, which explains the policy underpinning the changes in greater depth.

Simplification of the tax and National Insurance treatment of termination payments - consultation on draft legislation

The draft legislation is intended to give effect to the changes, and the government invites views on whether this objective is achieved.

The government is interested in hearing from everyone with a view on this subject, including employers, their representatives, trade organisations and any other interested parties.

Closing date for comments: 5 October 2016

Detail of feedback received

We would like to thank those who took the time to respond to this consultation.‎ We received a large number of detailed comments and are currently considering these. We will publish a summary of the responses in 2016.

Original consultation

Consultation description

The government is considering how they can make the tax and National Insurance contributions (NICs) treatment of termination payments simpler and fairer and wants to hear your views on how that can be achieved.

The consultation particularly seeks views on:

removing the distinction between contractual and non-contractual termination payments and whether this will make it easier for employers and employees to understand
the design of the new exemption from income tax and NICs
whether the income tax and National Insurance treatment of termination payments should be aligned
which of the existing exemptions which remove the liability to income tax should be retained and whether any new exemptions should be introduced

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