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Changes to tax liabilities on termination payments create complexity

An overhaul of the rules on taxation of termination payments has directly affected the tax treatment of payments in lieu of notice (PILONs) and foreign service relief (FSR), creating complicated questions for businesses when applying them to redundancy situations. Tim Stovold, head of tax at Kingston Smith, explains 

The changes which have taken effect from 6 April 2018 are in relation to payments in lieu of notice (PILONs) and foreign service relief (FSR). From 6 April 2019, the further change we are expecting is that termination payments in excess of £30,000 will be subject to Class 1A national insurance contributions (NICs) at 13.8%.

Until 6 April 2018, the key point relevant to the taxation of PILONs was whether the payment of the PILON was under a contractual obligation, including a customary practice which had become quasi-contractual, or whether the payment was non-contractual.

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