Termination payments

STOP PRESS: Abolition of non-dom regime and introduction of residence-based IHT regime Finance Act 2025 (FA 2025) which received Royal Assent on 20 March 2025, implements legislation to abolish the remittance basis of taxation and replace it with a residence-based regime, commencing on 6 April 2025. FA 2025 also replaces domicile as the key factor in establishing liability to inheritance tax. Other changes include amendment of the rules determining excluded property status, the abolition of protected settlements status of offshore trusts, and changes to overseas workday relief.

For information on these changes, see: Practice Notes: The abolition of the remittance basis of taxation from 2025–26, A new residence-based regime for IHT from 2025–26. See also: Finance Act 2025.

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

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Latest Tax News

Tax weekly highlights—22 May 2025

This week's edition of Tax weekly highlights includes: (1) the Court of Appeal decision in Impact Contracting Solutions, (2) regulations being made to increase penalties for late payment of tax, (3) an ex-solicitor being given the first individual tax avoidance stop notice, and (4) News Analysis articles being published about the decisions of the First-tier Tax Tribunal (FTT) in Industria Umbrella and Powell.

Court of Appeal—facilitators of VAT fraud can be deregistered even if they make legitimate taxable supplies (Impact Contracting Solutions Limited v HMRC)

Tax analysis: In Impact Contracting Solutions Ltd (ICS), the Court of Appeal upheld the Upper Tribunal (UT) decision that HMRC has the power to deregister a taxable person for reasons related to tax fraud, even if the taxpayer makes other legitimate taxable supplies, provided that the deregistration is a proportionate step in the circumstances.

FTT decides that an income tax charge arose on the novation of a director’s loan account (Powell v HMRC)

Tax analysis: In Powell, the First-tier Tax Tribunal (FTT) dismissed the taxpayer’s appeal against a closure notice charging income tax under section 415 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) in respect of the release of a close company loan to a participator.

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Tax analysis: In HMRC v Industria Umbrella, the First-tier Tax Tribunal (FTT) held that, when considering the quantum of a penalty for the failure to notify arrangements under the disclosure of tax avoidance schemes (DOTAS) rules, the amount determined by the daily penalty calculation was insufficient, holding instead that the maximum £1m penalty was necessary. The FTT noted that the fees charged by the promoter were high-level, and given the question of whether the arrangements were notifiable was not complex, there was no reason for non-compliance.