A consultation is to take place to review the treatment of termination payments with a view to simplifying the treatment of tax and national insurance.
This does however mean that the current rule allowing the first £30,000 of some termination payments to be made tax free could be abolished, as contractual and non-contractual payments are aligned in their treatment for income tax and national insurance purposes.
This could be replaced with a new exemption from tax and national insurance, which will increase in proportion with the length of service. In addition, no allowance would be available until completion of two years’ service with the company.
There is also a move to link the exemption to any statutory redundancy payment.
HMRC are consulting until 16 October 2015 on the current proposals and our tax team with provide more information as soon as it becomes available.