Changes appear likely in respect of the taxation of termination payments advises employment lawyer, Stuart Snelson.
The government has commenced a consultation with a view to simplifying the tax treatment of termination payments. The consultation paper sets out a number of considerations including removing the distinction between contractual and non-contractual payments and amending the current £30,000 exemption. One potential change could be to introduce a minimum qualifying period to have any tax exemption at all and for that amount to increase with length of service. The likely outcome will be a reduction in the amount that can be paid tax free upon termination.
The consultation is open until October 2015 and further details will follow once the consultation is concluded and any new tax position implemented. Employers looking at possible termination payments need to be aware of the potential that in the future the cost of compensating employees may well increase.