HMRC has amended the rules on income tax and national insurance on termination payments.
A termination payment is a sum paid by an employer to an employee whose employment has ended. This payment is generally tax free up to £30,000 (unchanged since 1988) and completely free of national insurance. The rules on whether this was a payment in lieu of notice (PILON) changed in April 2018.
On 4 December 2018, HMRC announced a further change regarding the class 1A national insurance liability.
The introduction of this new tax charge has been put back one year to April 2020.
As a result of this change, all employees will pay income tax and class 1 national insurance on the basic pay they would have received had they worked their notice period, regardless of whether they did. It will no longer matter how the contract of employment is drafted, nor what the payment is called. [18.12]