It isn’t the best parting of the ways, so you decide to make a payment to the employee concerned in lieu of notice, so they can leave immediately …do they pay tax on it or not, that is the question?
Up until 6th April 2018, the answer depended on the employee’s contract of employment terms.
Where there was NO express clause in the employment contract which defined the payment in lieu, as “wages”, the payment has been regarded as compensation for a breach of contract and the first £30,000 has been tax free.
However all that has now changed; there is NO £30,000 or any other figure exempted and ALL payments in lieu of notice, whether contractual or not, are subject to tax.
This change affects payments made on or after 6 April 2018 in relation to terminations that take place on or after that date.
The Graham Agency, keeping you informed.