Spring Budget 2017 : End of Tax-Free Redundancy Payments

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August 21st 2018
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Spring Budget 2017 : End of Tax-Free Redundancy Payments

Tax-free status of redundancy payments may disappear after April 2018.

We're only a couple of weeks out from the March 8th Spring Budget and the first drips of information have started coming in and relate to 'PILON' - Payments in lieu of notice - most commonly seen as redundancy payments.

PILON is made when an employee contract is terminated without notice (as in redundancy) so there is no notice period to work through whilst receiving some pay. Where the termination payment terms have not been included in the employment contract the payment itself has been tax-free up to £30,000. However, contractual termination payments do not receive the £30,000 allowance so have always attracted tax and national insurance in the regular way.

Office of Tax Simplification proposals from two years ago point to removing the allowance altogether regardless of whether the payment was inside the employment contract and also suggest employers make employers NI contributions on amounts paid over £30,000. The only payments made that will keep the allowance are normal work bonus payments that are expected in the 'notice period' made after contract termination.

If the proposals are put forward and approved by parliament in two weeks, they should be expected to come into force for payments received from April 2018.

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