Where an employee’s contract is terminated on or after 6 April 2018, the rules for working out how much of their pay-off is tax-free are quite different from what they have been. Payments in lieu of notice are taxable, as are payments which are classified as post-employment notice pay (PENP). Amounts paid for foreign service are also taxable, except for seafarers.
The PENP must take into account the value of all benefits provided to the employee, including benefits received through a salary sacrifice scheme. The employer must calculate the value of the PENP using a formula provided by HMRC; we can help you with that.
After deducting the PENP from the total termination payment, any remaining balance may be paid free of tax and national insurance contributions if it lies within the £30,000 limit.
These new rules are certainly not simple to apply; please ask us for assistance.