Termination payments

The Practice Notes in this subtopic consider the tax treatment of payments (and the provision of other benefits) made in connection with the termination of employment. Tax treatment in this context means the income tax and National Insurance contributions (NICs) treatment for the employee or director, as well as the PAYE and NICs obligations for the employing company and the corporation tax deductibility of the particular payment.

Depending on the circumstances, termination payments (or benefits) may be taxable in full, in part, or in limited circumstances may be fully exempt.

The first question is whether a payment made (or other benefit provided) on or in connection with termination of an employment is taxable as earnings or emoluments from the employment under the general charging provision (section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)). There is a significant body of case law on what constitutes earnings for these purposes. For details of the relevant case law and how it applies in the context of termination payments, see Practice Notes: Termination payments and tax and Termination payments taxed as earnings,

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Latest Tax News

Tax weekly highlights—19 March 2026

This week's edition of Tax weekly highlights includes: (1) the enactment of Finance Act 2026 on 18 March 2026, (2) News Analysis on the Court of Appeal’s decision in Muller UK and Ireland Group LLP that amortisation debits were correctly disallowed by HMRC, (3) News Analysis on the UT’s decision in Putney Power Limited on the issue of whether the appellants had begun to trade by the relevant date for EIS relief purposes, (4) new HMRC guidance on multinational top-up tax and domestic top-up tax reporting software, and (5) News Analysis on the FTT’s decision in Countrywide Partners Limited to uphold a penalty for failure to comply with a stop notice issued under the promoters of tax avoidance schemes (POTAS) rules.

Upper Tribunal denies EIS relief as trade not commenced (Putney Power and Piston Heating v HMRC)

Tax analysis: The Upper Tribunal (UT) has held that the First-tier Tax Tribunal (the FTT) made a material error of law in its approach to determining when a trade has ‘begun to be carried on’ by a company for the purposes of qualifying for Enterprise Investment Scheme (EIS) relief under section 179(2)(b) of the Income Tax Act 2007 (ITA 2007). The FTT had identified a set of principles by reference to factors which were of relevance in previous cases and applied those ‘legal’ principles to determine that neither Putney Power Limited (‘Putney’) nor Piston Hearing Services Ltd (‘Piston’) had begun to carry on a trade by the relevant date of 4 April 2018. The UT set aside the FTT’s decision on the basis that the FTT had sought to apply a principles-based test which did not exist as a matter of law. The proper approach requires a multi-factorial evaluation of all of the circumstances in the case at hand. The UT re-made the decision but ultimately reached the same conclusion as the FTT, dismissing the appeals of both Putney and Piston and holding that neither company had commenced trading by the relevant date. The decision is significant because it clarifies that there is no strict legal test for when a trade commences: the question remains highly fact sensitive and will be determined by reference to the particular facts and circumstances of each case. Written by Kate Ison (partner at Macfarlanes LLP) and Victoria Braid (associate at macfarlanes LLP).

FTT upholds £1m penalty for stop notice breach (Countrywide Partners Ltd v HMRC)

Tax analysis: In Countrywide Partners Ltd v HMRC, the First-tier Tax Tribunal (FTT) upheld HMRC’s £1m penalty on the taxpayer for breach of a stop notice under section 236A of the Finance Act 2014 (FA 2014), holding that the appellant continued to promote the arrangements by organising and managing them (including issuing payslips and making payments) for existing users.

Court of Appeal upholds UT decision disallowing amortisation debits (Muller UK and Ireland Group LLP and others v HMRC)

Tax analysis: In Muller UK and Ireland Group LLP and others, the Court of Appeal dismissed the appellants’ appeals against the Upper Tribunal (UT)’s decision that amortisation debits were correctly disallowed by HMRC.