Changes to the Taxation of Termination Payments

19th July 2017
Changes to the Taxation of Termination Payments image

Changes to the Taxation of Termination Payments

Many businesses may be aware that the first £30,000 paid to an employee as a non-contractual termination payment (say under a Compromise Agreement) can normally be paid free of tax.  However the tax treatment on any amount in excess of £30,000 has recently changed.

Previously the employer only deducted tax at the rate of 20% on any excess over £30,000, using the tax code BR.  In the event that the employee had an additional tax liability over the basic rate, say because the employee was a higher rate tax payer, then the employee was personally responsible for accounting for this through the self-assessment process.  Now the employer is required to deduct the full tax liability on a termination payment in excess of £30,000 through the PAYE system using the tax code OT.  This tax code assumes that the employee has no personal allowances available and requires the employer to tax the termination payment in excess of £30,000 on the employee’s appropriate rate of tax (e.g. basic 20%, higher 40% etc).

For more advice on this subject please contact Daven Naghen on 01775 722261, daven.naghen@maplessolicitors.com or 23 New Road, Spalding, Lincolnshire PE11 1DH.


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Coffee Morning and Pop-Up Clinic

Join us at The Ruby Hunt Centre, Church Street, Donington, PE11 4UA on Monday 11th March 2024 between 10am and 12pm for a free coffee morning and pop-up clinic to talk about Wills, Powers of Attorney and financial planning for Care Homes.

If you cannot join us for the coffee morning, please contact one of our lawyers in the Wills and Probate Department to discuss a home visit.

Or telephone the office 01775 722261 and ask to speak with one of the team.

We look forward to seeing you there.

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Jamie Dobbs GCILEx

Over the last forty years I have cause to deal with many law firms both in a personal and professional capacity, including some ‘top’ London Companies. In all of those dealings I have never found anyone as proactive and so willing to offer help and advice as Jamie Dobbs. During the last two years Jamie guided my parents through the completion of Lasting Powers of Attorney. Helped myself with the use of the LPA and recently dealing with Probate and Estate Administration following their death.

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