Proposed tax simplification of employment termination payments

The Law Society has responded to HM Revenue & Customs and HM Treasury consultation regarding the simplification of tax and national insurance treatment of termination payments.

The mains points covered include:

1.That the distinction between contractual and non-contractual payments is an artificial distinction and should be removed.

2. That the proposal to limit the proposed relief to redundancy dismissals and length of service will be too complicated for the majority of employers to administer.

3. Relief should apply to all compensatory payments.

4. Income and NIC should be aligned.

5. The exemption for injury and disability should remain.

The government wishes to reform the tax and national insurance exemptions for termination payments to make the system simpler, so employees will be certain about the amount of money they will receive if they lose their job.The Law Society welcomes the aspiration but is doubtful whether the proposals in the consultation will achieve the government’s aim. If the proposals were adopted, then the current arrangements, which are complicated but well understood by legal and HR professionals, would be replaced by a similarly complex system that is not understood by those who deal with termination payments.”