SEVERANCE PAYMENTS FOR EMPLOYEES - TAX CHANGES

At the present time, when a redundancy or other compensation payment is made to a former employee after his or her P45 has been produced, the employer has to deduct income tax at basic rate and the employee is responsible for any additional higher rate tax. New regulations will be introduced to take effect from 6th April 2011 and from that date, tax at the full 20%, 40% or 50% rates must be deducted by the employer from termination payments, whenever they are made. This does not affect the tax free status of the first £30,000 of any qualifying payment and the new provisions do not change the total amount of tax which will be payable, but they do mean that HMRC will receive the tax at an earlier time.

If you have any queries about this or any other employment matter, please do not hesitate to contact us. Our concern, as always, is to provide you with swift, practical, cost-effective solutions.

Jane Laidler

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