CHANGES TO TERMINATION PAYMENTS

Care is always required when employees are made redundant or payments are made on the termination of employment. Not only are there employment law considerations, there are also important tax implications and this is an area where professional advice is strongly recommended to avoid unnecessary pitfalls. The tax treatment of these payments changed from 6 April 2018 and further changes come into effect in 2019.

 Pay In Lieu of Notice

Employers now need to pay Income Tax and Class 1 National Insurance Contributions (NICs) on an element of all termination payments from 6 April 2018, whether or not they are contractual payments. The element that is now chargeable to Income Tax and NICs is the amount of the termination payment that represents payment in lieu of notice (PILON), sometimes referred to as “garden leave”.

Ex-gratia Payments

The first £30,000 of genuine ex-gratia continues to be exempt from income tax and national insurance. The £30,000 limit includes statutory redundancy payments. Payments in excess of £30,000 are taxed as employment but there is currently no NIC on such payments. It was originally proposed that employers’ NIC would be applied to such payments from 6 April 2018 but the delayed introduction of the National Insurance Contributions Bill means that employer NICs on termination payments above £30,000 will now take effect from 6 April 2019.

Periods of Foreign service

In addition, foreign service relief on termination payments was removed for all UK residents – apart from seafarers – from 6 April 2018. Previously, this provided a further exemption from income tax and NIC depending on the period of time working abroad.

UK residents whose employment ends after 6 April 2018 who receive a payment or benefit in connection with that termination made after 13 September 2017, will not now be eligible for tax relief for any period of foreign service as part of that job.

Shared Parental Leave

It is likely over the coming months more clients will begin to seek guidance on the issue of Shared Parental Leave (ShPL). Whilst the scheme itself is not new, having first been introduced in April 2015, the government are making a concerted effort to increase awareness amongst the general public as a result of so few individuals choosing to take up the scheme in recent years.

You should be aware that ShPL allows eligible parents to share a maximum of 50 weeks leave between them to care for their child. SPL grants parents greater flexibility to divide the allocated time up between themselves, allowing them to choose between spending time off with their child together or having one parent spend time caring for the child alone whilst the other returns to work.

During the period of leave, eligible parents will be entitled to Shared Parental Pay (ShPP) currently set at £140.98 per week (set to rise to £145.18 in April 2018). It is important you understand that SPP does not cover the entirety of the leave period, instead parents are entitled to a maximum of 39 weeks of paid leave minus any weeks paid as Statutory Maternity or Adoption Pay.

The scheme looks to provide greater equality amongst parents, allowing mothers the possibility to return to their careers earlier, whilst giving fathers or partners the opportunity to take a greater share of the childcare. You need to be aware that not all employees will be eligible to take part in the scheme. Generally speaking for an employee to be eligible they must at least meet the following requirements:

• They must share responsibility for the child with either; their husband/wife or joint adopter; the child’s other parent or their partner
• They must have worked for your client for a continuous period of at least 26 weeks by the end of the 15th week before the due date (or the date they are matched with their adopted child)

There are other more detailed terms employees must adhere to in order to be eligible for ShPL and ShPP, including strict notice requirements the employee has to meet. Having a clear policy in place regarding ShPL and ShPP will help your client manage this leave and can be used to increase awareness among staff, and managers. Additionally, they could arrange a training session on this leave to help inform employees about the way the leave works and the requirements in place.