Termination payments – HMRC change

April 2024 | Tax

Of interest to employment lawyers is HMRC’s change of tack in relation to giving advice on termination payments. Their recent update states:

‘Termination payments – the correct route to obtain clearance where there may be uncertainty of the correct tax treatment

HMRC is aligning its approach to providing advance assurance on certain termination payment enquiries.

HMRC guidance committed HMRC to giving a binding answer if you made enquiries on termination cases involving:

  • the disability and injury compensation exception

  • the foreign service exception

  • how the £30,000 threshold applies to payments made by the third party and by the employer

  • non-cash provisions

HMRC will no longer give a binding answer on these cases, outside the normal Non-Statutory Clearance process, for example, where there is a genuine point of uncertainty on the correct treatment.

If you or your advisor have a genuine point of uncertainty on the Tax and National Insurance treatment of a termination payment, you should use the Non-Statutory Clearance Service.

Previously HMRC guidance advised HMRC would assist customers if they required an explanation of how certain Statements of Practice and Extra Statutory Concessions operated within the context of a termination case. These are:

  • SP2/81: contributions made to a pension scheme as part of termination arrangements

  • SP10/81: the meaning of disability

  • SP13/91: voluntary payments on retirement made before 6 April 2006

  • SP1/94: clearance procedure for redundancy schemes

  • ESC A10: lump sums from overseas pension schemes

  • ESC A81: legal expenses in termination settlements

Queries on these should now be dealt with in the same way, through the Non-Statutory Clearance Service.

EIM12800 Termination payments and benefits – contents provides comprehensive information to establish the Tax and National Insurance treatment of a termination payment.

HMRC’s current position on handling termination payment enquiries can be found at EIM12820 – Termination payments and benefits.’

Source: www.gov.uk.

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