The manner in which termination payments are to be treated for tax and NI contributions have been under scrutiny.

The rules are changing for any termination payments after the 6th April 2018. There will be further changes in April 2019.

There will now be significant changes in this area, which has not seen any significant changes in the last 30 years. From 6th April 2018 the legislation will, amongst other changes:

  1. Effectively treat all payments in lieu of notice as earnings as subject to tax and class 1 NICs.
  2. Permit HM Treasury to vary the £30,000 threshold by regulations.


From 6th April 2019 the legislation will subject all termination payments above the £30,000 threshold to Class 1A NICs.

Whether you are an employer or an employee we would strongly advise that if you are considering entering into a Settlement Agreement that you take legal advice at an early stage to avoid any unexpected  difficulties or, indeed, any disappointments once the Settlement Agreement has become binding.