Termination payments are payments made to an individual relating to the loss of their job. They can take the form of cash, benefits or both. Termination payments will either be fully taxable, partially taxable or fully exempt depending on the nature and the amount of the payment. Although widely referred to as termination payments, this also applies to payments in relation to a change in the duties of employment or a change in the earnings of that employment. This note therefore covers payments related to retirement, redundancy, dismissal, death, resignation, the nature of the role being changed or a change in pay for the employment. A termination payment may also be referred to as a ‘golden handshake’.

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

1. •

   earnings ― see the Taxation of cash employment termination payments guidance note

2. •

   benefits ― see the Taxation of non-cash employment termination payments guidance note

3. •

   restrictive covenants ― see the Taxation of payments for restrictive covenants