Changes to tax

Employers need to be aware of reforms within the current tax system which have come into force.  The changes include the rules in relation to payment in lieu of notice and employers need to ensure they comply with them.


Calculating termination payments can already be a complicated process, however this is set to get tougher now the government have implemented changes to the tax system which will affect pay in lieu of notice, which will further complicate how termination payments are calculated.


Payment in lieu of notice form 6th April 2018 is subject to tax and national insurance, this is due to a change in the rules on taxation of termination payments which removes the distinction between contractual and non-contractual payments. Prior to these changes there was a tax exemption on payments under £30,000 however, this will no longer apply to payments in lieu of notice.


The new rules apply whenever an employee’s leaves the business, the reason for leaving is irrelevant even if the employee is dismissed for gross misconduct. An employee will not be able to avoid the new rules by agreeing to cut short notice.


Employers can ensure they comply with this by informing all relevant parties within the business such as payroll and accountants so that nothing is missed.


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