Simplification of the tax and national insurance treatment of termination payments

The ATT responded to the Stage 3 consultation which invited commentary upon the draft legislation to effect the proposed changes that had previously been consulted upon. 

The main focus in our response was on whether the draft legislation fulfilled the policy objectives. Those objectives were identified as follows in the Introduction to the Consultation and included:

- the tax system should continue to provide support to those who lose their job;

- the rules should provide certainty for employees and employers;

The objective of ensuring that the tax system should continue to provide support to those who lose their jobs is substantially met by the Government’s decision to retain the £30,000 threshold.

We think that it is too soon to say whether the proposed changes meet the objective of having rules that provide certainty for employees and employers. The proposals have apparently been framed with the objective of making the tax implications of a termination payment dependent on objective facts. In the process, however, they have injected substantially greater complexity into the legislation. Over time, increasing familiarity with the amended legislation may bring the intended certainty for employees and employers. In the short to medium term, however, we think that a post-transaction clearance procedure would be the best way to ensure certainty for employers and employees. If resource constraints make that impossible for HMRC, we think that consideration should be given to the development and provision by HMRC of an online calculator which took the user through the various required calculations and produced (like the proposed online tool for certain IR35 purposes) a conclusion which HMRC could not challenge provided the data entered was complete and correct.

To read our response in full, click here

Autumn Statement Update - National Insurance thresholds

As recommended by the Office of Tax Simplification (OTS), the National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157. This will simplify the payment of National Insurance for employers. However, some employees will end up paying more NIC as a result.