This amends Clause 5 and any new Clauses or new Schedules relating to the tax treatment of payments or benefits received in connection with the termination of an employment or a change in the duties in, or earnings from, an employment.

From April 2018 payments in lieu of notice (PILON) will no longer be exempted from tax up to £30,000 after April 2018 apart from where they relate to bonuses that the employee would have received if they had kept their job. Employers will also have to pay national insurance contributions (NICs) on payment in lieu of notice (PILON) amounts over £30,000 for the first time.  

The amendment removes the power for the Treasury to amend the meaning of ‘basic pay’ for the purposes of calculating ‘post-employment notice pay’ by regulations.

A second amendment removes the power for the Treasury to reduce the £30,000 threshold in connection with the taxation of termination payments by regulations.

There will also be a review of impact of termination payments on low income workers within two months of Royal Assent being given to the Finance (No. 2) Act 2017.

The Bill requires the Chancellor of the Exchequer to commission a review of the impact of the provisions of sections 402A to 402E on low income workers, with a deadline for presenting the review to parliament before the start of the tax year 2018-19. The amendments were proposed by Labour.

Mark Cawthron, a tax expert at Croner-i said: ‘This reform to the taxation of termination payments will actually have a pretty fundamental and widespread impact.

‘In particular, in most terminations, it will very largely cut away the financial benefits and in the case of larger termination packages, for senior executives or other high earning staff, the new national insurance liability will be a significant extra cost for employers.’

The exemption for bonuses PILON will give people whose bonuses make up a large part of their pay an advantage over workers who just earn a basic salary. If the government was to change the £30,000 cap without proper scrutiny this would also undermine the current position.

In addition, Clause 15 and any new Clauses or new Schedules relating to the conditions under which business investment relief in Chapter A1 of Part 14 of the Income Tax Act 2007 is available;

Clause 25 and any new Clauses or new Schedules relating to the extent to which trading profits are chargeable to corporation tax at the Northern Ireland rate will also be subject to review after the completion of the first financial year when the new corporation tax regime is in force to assess the changes on affected profit and losses.

The Finance Bill (No.2) amendments issued 6 October are available here