UK: Autumn Statement - taxation on termination payments and salary sacrifice

Our July-August 2016 ebulletin highlighted HMRC proposals to change the taxation of termination payments from April 2018, and in particular to provide that all payments in respect of unworked notice be treated as earnings subject to income tax and employer and employee NICs (regardless of whether there is a contractual payment in lieu clause). The Autumn Statement confirmed that the government intends to go ahead with this proposal, but has limited the provision related to unworked notice to cover basic pay only (and not bonuses that might have been paid in respect of that period had the employment continued).

This is a welcome development for employers, as the inclusion of bonus posed considerable practical problems as well as increasing the overall tax burden. Employer NICs will be payable on termination payments above £30,000 from April 2018. Draft legislation has been published for consultation until 1 February 2017.

The Autumn Statement also confirmed that restrictions on the tax relief for salary sacrifice schemes will come into force in April 2017. Existing arrangements are protected until April 2018 (or, for cars, accommodation and school fees, April 2021). Employers may wish to review any salary sacrifice schemes offered in light of this change.

Other changes include the alignment of the threshold for employer and employee NICs and the removal of employee shareholder status tax reliefs; the employee shareholder status itself is to be closed in due course. The Government also plans to review the taxation of benefits in kind and expenses. Further details are included in our tax team's briefing available here.