Employment income – selective aspects

Graham Chase, Tax Partner, CMS

Termination payments

The Government has announced changes to the way non-contractual termination payments will be taxed from April 2018.

The position is complex, but very broadly certain payments which are non-contractual “ex gratia” in nature are tax free up to £30,000 upon termination of employment.  The excess is subject to income tax but is not currently subject to national insurance contributions (“NICs”).

From 2018 that excess will become subject to employer NICs.

Also, a technical consultation will be undertaken with a view to tightening the scope of relief. No detail has been provided so far but the Government consultation released in July 2015 suggests that the distinction between contractual (fully taxable) and non-contractual termination payments should be abolished. All termination payments would be aligned, subject to income tax and NICs. This should be subject to specific relief for payments in connection with redundancy; but it looks as if a suggestion that the quantum of relief  reflect years of service has been dropped.

Trivial benefits in kind

As announced in draft guidance published earlier this year, a statutory exemption will be introduced for “trivial” benefits-in-kind costing £50 or less that are provided to employees.

This new exemption is a practical and sensible solution to alleviate the burden on employers to account for such benefits via a P11D.  In addition to the administrative savings it will also save money for employers, even trivial benefits (when grossed up for tax) can give rise to significant tax costs if there are enough employees. Restrictions to the exemption (for example, where benefits are provided on a regular basis or in recognition of services performed by the employee) are included in order to reduce the scope for abuse.

Internal systems need to be correctly aligned to obtain the savings.

Salary sacrifice 

Salary sacrifice clearances have increased by over 30% since 2010. So it cannot be surprising that the Government is now considering limiting the range of benefits that may qualify.  Pension contributions, childcare and various health related benefits are not on the list.

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