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UK Autumn Statement: Salary Sacrifice and Termination Payments

Amongst a number of announcements relating to employment taxes in today’s UK Autumn Statement, forthcoming changes to the tax treatment of salary sacrifice and employee termination payments were confirmed.

The tax and National Insurance advantages of salary sacrifice schemes will be removed from April 2017 (i.e. the sacrificed pay will be subject to tax and National Insurance). Thankfully this will not apply to arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. All arrangements in place before April 2017 will be protected until April 2018, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected until April 2021. This attack on salary sacrifice schemes appears harsh in principle but it was clear from the previous consultation that the government was committed to the change and the majority of salary sacrifice schemes will relate to the excluded benefits in any event.

The Chancellor also confirmed that from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer’s National Insurance. However, although as previously announced all PILONs will be fully taxable and NICable from April 2018 irrespective of whether there is a PILON clause in the contract, the government has adjusted its proposals in this regard following consultation. Rather than the taxable PILON amount including all compensation for benefits and bonus that would have been received during the unworked notice period, tax will only be applied to the equivalent of the employee’s basic pay for the unworked notice period. This is a sensible adjustment – the previously announced approach would have involved a number of unnecessary complexities (e.g. deciding how much bonus the employee might have received during the unworked notice period).

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patrick ford, squire patton boggs, tax corporate attorney, finance property law
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Patrick Ford is an attorney with Squire Patton Boggs in Manchester, whose expertise covers advising on the tax implications of corporate finance and property transactions, as well as tax structuring opportunities in connection with such transactions and corporate restructuring generally. Patrick has varied experience of employee incentive work and has drafted documentation for, implemented and advised on the operation of a wide range of equity-based employee incentive arrangements. He also has extensive experience of...

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