PT28 Termination Payments Flashcards
Under what circumstances are termination payments taxed as normal earnings?
- Payment is a reward for services past/present/future
- Payment is contractual
- Payment is not contractual but there is a reasonable
expectation that it will be received - Payment is for garden leave
- Payment is for restrictive covenant (ie giving up right to
do something) - Payment is PENP
Under what circumstances are termination payments fully exempt? (under itepa)
NICs?
- Payment is on death/injury/ disability of employee
- Payment is into registered pension scheme
- Payment relates to provision of outplacement counselling or a retraining course
No NICs
Ex gratia payments / redundancy payments rules
NICs?
First £30k of payment is exempt and rest is
taxed as top slice (after dividends) at 20/40/45% if:
* Payment is voluntary ‘compensation for loss of office’, otherwise known as an ‘ex gratia payment’
* Payment is redundancy pay (including statutory redundancy)
Subject to Class 1A NICs (excess over £30,000)
What about retirement?
Payments made directly by employers to employees on retirement are likely to be treated as fully taxable with no £30,000 exemption, as payments from an Employer Financed
Retirement Benefit Scheme (EFRBS).
APPLICATION OF PAYE
PAYE will be deducted from the taxable element using the tax code if the payment is before the P45.
If the payment is after the P45, tax is deducted using code 0T on a week one/month one basis, which allows 1/12th of the basic and higher rate bands to be allocated to the payment. Taxable amounts are taxed as the highest part of income
EXEMPT BENEFITS
Provided certain conditions are met, payments in respect of the following are exempt benefits:
* Employee’s legal costs in relation to a dispute on termination.
(ITEPA 2003, s.413A)
* Outplacement counselling and related travel costs.
(ITEPA 2003, s.310)
* Retraining courses.
