How could a termination payment be taxed?

Produced by Tolley in association with Sue El Hachmi of Osborne Clarke LLP

Employment Tax

Guidance

Termination payments are defined in the Termination payments ― overview guidance note.

Termination payments can take the form of cash, benefits or both. The payment will either be fully taxable, partially taxable or fully exempt depending on the nature and the amount of the payment.

Depending on the circumstances, termination payments can be categorised as one of the following, each with their own tax and NIC treatment:

•
earnings ― see the Taxation of cash employment termination payments guidance note
•
benefits in kind ― see the Taxation of non-cash employment termination payments guidance note
•
restrictive covenants ― see the Taxation of payments for restrictive covenants guidance note
•
benefits from an employer-financed retirement benefits scheme (EFRBS) ― see the Employer-financed retirement benefit schemes (EFRBS) ― overview guidance note
•
termination payments (this includes benefits) within ITEPA 2003, s 401 ― see the Termination payments ― overview guidance note

It is the employer’s responsibility to correctly operate PAYE for termination payments and they, therefore, bear the risk of potential

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Sue El Hachmi

Senior Associate at Osborne Clarke

Sue advises on the design and implementation of employee incentive arrangements for private and public companies, including all types of tax-advantaged plans and bespoke arrangements for senior executives and management.Sue also advises on the incentive-related aspects of corporate transactions and has experience of private equity transactions and public company takeovers, flotations and demergers.Sue is a member of the Share Plan Lawyers Group and a member of the UK BioIndustry Association Finance and Tax Advisory Committee.

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How could a termination payment be taxed?