Tax treatment of termination payments

United Kingdom
22/07/1999
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Don"t believe everything you read in the Press!

Contrary to recent Press reports, the tax treatment of
termination payments has not changed. The Court of
Appeal judgment in EMI Group Electronics Limited
-v- Coldicott on 16.7.99 has confirmed the current law
that payments in lieu of notice made pursuant to an
express pay in lieu clause are fully taxable and do
not qualify for the GBP30,000 exemption. By contrast,
redundancy payments still qualify for the GBP30,000
exemption, even if contractual.

The judgment distinguishes between (tax exempt)
redundancy payments, the purpose of which is (in part
at least) to "relieve the hardship consequent upon
becoming unemployed" and (taxable) payments in
lieu of notice, the purpose of which is to give an
employee "the security of a continued right to receive
his salary (or a payment in lieu) while he finds other
employment". The distinction between these two
purposes may not be apparent to everyone.

For further information on the tax treatment of
termination payments, please contact Sandy Henderson,
partner in Cameron McKenna"s Employment Group on:

DDI: 0171 367 2282
Fax: 0171 367 2000
e-mail: [email protected]

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