Update on changes to the taxation of termination payments

Print publication


The Government appears to have dropped its controversial proposal to tax certain “post-employment” and “expected bonus” payments as earnings and has confirmed that income tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked following termination of employment.

As reported in our October newsletter, as from April 2018:

  • The exemption from income tax and NICs for termination payments up to the current threshold of £30,000 will be retained.
  • Employer NICs will be payable on payments above £30,000.
  • The distinction between contractual and non-contractual payments in lieu of notice (PILONs) will be removed so that all PILONs will be treated as taxable earnings.

A revised draft Finance Bill 2017 (which will contain more detail on the proposals) is expected on 5 December 2016 and we will keep you updated.