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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Our Covid-19 Risk Assessment

At Maples Solicitors, our top priority is keeping staff and clients safe during Covid-19. 

We are working tirelessly to make our offices, meeting rooms, and communal spaces safe for everyone. These measures include social distance meeting for everyone and handwashing stations throughout the building. Phone or video call appointments are also available for those who do not feel safe leaving their homes.

You can read our Risk Assessment below, and if you have any question or concerns, please contact us at Enquiries@Maplessolicitors.com or 01775 722261 

 Covid-19 Risk Assessment

 

 

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