Tick-Tock for Tax - Post Termination Payments
07 January 2011
Come April 2011 there will be a significant change to the treatment of income tax on post termination payments made to employees.
Currently, if payment is made post P45 employers can deduct income tax at the basic rate of 20% with any surplus tax liability being the responsibility of the employee during self-assessment (for those higher tax payers). However, the change set to come in play will see employers being responsible for deducting income tax for the full amount of tax, up to 50%, depending on the tax band in which the employee falls.
Employers will therefore have to make sure that any severance agreements or termination payments from April 2011 comply with the changes and must not just agree to deduct the basic rate of tax. If they don`t they could face being challenged by HMRC for the recovery of the remaining tax liability.
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