Changes for termination payments coming in April

Here are some notable changes when it comes to termination payments:

Foreign service relief termination payments

The Government has decided that taxpayers who have worked abroad but are resident in the UK in the tax year in which their employment is terminated should be subject to exactly the same rules as taxpayers who have not been abroad. Clients will benefit from the existing £30,000 exemption only. The only exception to this change is if you are a seafarer.

In the past, employees who received termination payments and who had spent all or a large part of their employment overseas have been eligible to qualify for what is known as ‘foreign service relief’. This could potentially give them income tax relief of an amount greater than the standard £30,000 deduction. In some cases, the payment would be completely exempt from income tax.

The measure will apply to those who have their employment contract terminated on or after 6 April 2018. If the payment is received from 14 September 2017 onwards in advance of the termination of the employment, the restriction will also apply.

More restrictive PILON classification

The income associated with a contractual notice period that is not worked will no longer benefit from the £30,000 termination payment exemption. To further confuse matters HMRC are now referring to PILONs (Pay in Lieu of Notice) as ‘PENPs’(Post-employment Notice Pay) which represents the amount of pay, and/or benefits, that the employee will not receive because their employment was terminated without full, or proper notice being given.