Employers and employees alike will be relieved to hear that George Osborne has not implemented the proposals of the Office of Tax Simplification (OTS) to simplify the tax and National Insurance contributions (NICs) treatment of termination payments, which are currently exempt from employer and employee NICs and are free of income tax on the first £30,000.
The OTS's proposals were intended to simplify the rules regarding termination payments which the Chancellor has described as "complex". However, in reality, the rules were generally well understood and easily administered by employers. The OTS's proposals included removing the £30,000 tax free exemption on termination payments made other than in a redundancy situation, which would inevitably have involved additional costs for employers in reaching settlements with departing employees.
It is therefore welcome news that the Chancellor has instead confirmed that the £30,000 tax free exemption will remain in place. Businesses should, however, be aware that the Chancellor also announced that employer's NICs (rather than just income tax as has historically been the case), will be payable on the balance of termination payments over £30,000 from April 2018.