Termination Payments

The Office of Tax Simplification has produced an interim report which, amongst other things, considers section 401 of the Income Tax (Earnings and Pensions Act) 2003, which provides that termination payments are subject to tax insofar as they exceed £30,000.

The relevant sections of the report are section 7 (p57) and Annexe G (p105). Some of the points made are:-

• the distinction in tax treatment is unfair with regard to PILONs, where properly advised employers are better able to avoid paying tax
• there is widespread confusion over the different treatment of (a) income tax and (b) national insurance payments on termination payments
• the government should consider increasing the £30,000 threshhold (which, adjusted for inflation, would be £71,000 today).