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Threat to abolish the £30,000 tax free for ex-gratia termination payments
Royds employment specialist Caroline Doran has warned that negotiated exits could become much more expensive for employers, if the Government removes the £30,000 exemption for termination payments.
The Office of Tax Simplification (OTS) has called on ministers to all but abolish the £30,000 tax free for ex-gratia termination payments. Under the proposals, they would only apply in circumstances when the employee qualifies for statutory redundancy payments.
But Caroline warned that the changes would remove the carrot of a sizeable tax free lump sum.
“The £30,000 tax free sum often tips exit negotiations towards an amicable settlement,” she said.
“It will also financially hurt people when they are vulnerable and facing unemployment.”
Under this new relief, the OTS proposes that the level of the exemption would be a multiple of the statutory redundancy payment that the relevant individual is entitled to (or alternatively, a flat amount).
The OTS is recommending that all payments linked to the termination payment received by the relevant employee (including statutory redundancy payment) would be aggregated and then the income tax exemption would be applied against the value of this more modest and formulaic amount.
Allegedly the reason the £30,000 exemption is to be removed or severely limited is that it was too complex; rather than being a way of raising more tax revenue from termination payments.
The Government has yet to agree to the recommendation, although the OTS hopes that the arrangements may be approved in this year’s Autumn Statement.
If you have any questions regarding exit negotiations or termination arrangements then contact Caroline Doran, Partner in the Employment Department on 0207 842 1495 or any of the Royds’ employment partners: Richard Woodman, Gemma Ospedale, Kevin James, Helen Murphie.