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

Continue reading the full document

To gain access to additional expert tax guidance, workflow tools, generative tax AI, and tax research, register for a free trial of Tolley+™

TAKE A FREE TRIAL NOW

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.

Popular Articles

Personal Tax

Self assessment ― amendments and corrections

Self assessment ― amendments and correctionsOnce a self assessment tax return has been filed, both HMRC and the taxpayer (or the agent) has the right to make changes to the return. There are different time limits depending on whether it is a correction by HMRC or an amendment made by the

14 Jul 2020 13:37 | Produced by Tolley Read more

Employment Tax

Income tax paid on behalf of employee

Income tax paid on behalf of employeeIntroductionEmployers may wish to make payments of employment income to an employee / director without the employee suffering a tax or NIC cost on that pay. In other words, the employer wants to pay an amount net of tax and NIC. In some instances, often with

14 Jul 2020 11:58 | Produced by Tolley in association with Paul Tew Read more

Value Added Tax

VAT registration ― change of VAT registration details

VAT registration ― change of VAT registration detailsVAT registered persons must keep their VAT registration details up to date and notify HMRC of any changes. Failure to notify HMRC by the relevant time could result in a penalty. For guidance regarding penalties for failure to notify please see the

14 Jul 2020 13:57 | Produced by Tolley Read more

How could a termination payment be taxed?