Termination payments: Back to square one, for now

Photo of Justine Ricccomini By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)

4 May 2017

The revised legislation on termination payments which was proposed in the Budget 2017 has not yet materialised due to the Finance Bill being chopped into much smaller pieces as a result of the general election announcement.

Together with other high-profile cancellations of changes to the way tax law is applied and declared, such as to proposals such as Making Tax Digital, you could be forgiven for wondering where employers and their advisers go next.

Timing is key

As with all the Budget measures which were present in the Finance Bill which have now been cancelled as a result of the election, it is important that employers and agents are aware that the previous legislation, and not the new legislation, still applies. 

Termination payments should be made under the existing legislation until such times as the dropped sections within the Finance Bill 2017 are reviewed and - depending on the Government - re-enacted in a new Finance Bill.

Many employers will be likely to have read about the new approach to termination payments and indeed, will have been advised by their lawyers or accountants that the legislation was changing in April 2018.

Some may have already started planning termination payments using the new rules, as the record-keeping requirements are different and require the employer to look back over the most recent 12 months of an individual's employment, for the correct income tax and NICs liabilities to be calculated.

Knit one, Purl one, Unpick it all

Depending on the circumstances and the value of the settlement, the unpicking of termination payments may cause the employee to have additional tax or NICs liabilities or conversely, he may have overpaid.

In addition, the employee who has departed may not wish to co-operate. Such a situation needs to be handled carefully, especially if the resulting changes confer a higher tax liability on the ex-employee.

Any original settlement agreements may be deemed to still stand and it is important that the employer consults his employment lawyers in this regard.

Stay up to date with the latest tax changes …

… by attending the ICAS Tax Conference 2017, which takes place at the Radisson Blu Hotel, Edinburgh on Tuesday 23 May. Cost: Members and Students: £192 Non-members: £234 CAPS Firm: £174. All prices include VAT.


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