Employee Remuneration

Question 1

Types of termination payment (3)

Answer 1

1. Fully exempt from IT and NI
2. Fully taxable and subject to Class 1 NI
3. Partially exempt from income tax, with the taxable amount liable only to Class 1A national insurance

Question 2

Fully exempt from income tax and national insurance

Answer 2

• Payments made on death, injury or disability

* Lump sum payments under registered pension schemes

Question 3

Fully taxable and subject to class 1 NI

Answer 3

• Payment as reward for service - eg. terminal bonus
• Gardening leave payments
• Compensation for loss of office which was either contractual or reasonable expectation of payment, eg. many types of payments in leiu of notice (PILONs)
• Payments during, or in respect of, notice periods which are equivalent to the employee’s basic salary (post-employment notice pay, or PENP)

Question 4

Partially exempt from income tax, with the taxable amount liable to only Class 1A national insurance

Answer 4

• Discretionary payments - ex gratia payments as compensation for loss of office
• Continued receipt of benefit eg. use of car
• Payments in respect of a notice period that are in excess of PENP

Question 5

How does the partial exemption work?

“partially exempt from income tax, with the taxable amount liable to only Class 1A NI”

Answer 5

Exemption applies up to £30k. If e’ee receives statutory redundancy pay, the amount of statutory red pay reduces the £30k exemption

Excess above exemption treated as top slice of indiv’s income. Charged to IT using the non-savings income rates. Not liable to e’ee NIC. Employer suffers Class 1A on the taxable amount.

Actual payment received by the e’ee net of income tax via PAYE if paid on leaving employment, OR, net of basic, higher and additional rates of tax as appropriate, if paid after cessation of employment