bto solicitors - Corporate & Commercial Business Lawyers Glasgow Edinburgh Scotland

  • "really fights your corner..."
    "really fights your corner..." Chambers UK
  • "Consistently high-quality work and client-friendly approach."
    "Consistently high-quality work and client-friendly approach." Chambers UK

Taxation of Termination Payments – All Change

10 April 2018

The Government has issued a reminder that the way in which termination payments are taxed has changed. This is a significant change that could potentially result in more tax being paid upon termination of employment.

Employers will now be required to pay income tax and class 1 national insurance contributions on a part of all termination payments, irrespective of their contractual status. The new rules are aimed to prevent employers from manipulating the contractual and payment system. Thus, from now on the tax and national insurance consequences are the same whether or not the employment contract allowed a payment in lieu of notice to be made.  

The element now chargeable to income tax and national insurance is the amount of termination payment that represents payment in lieu of notice.

This change applies to payments, or benefits received on, or after, 6 April 2018 in circumstances where the employment also ended on, or after, 6 April 2018.

The rules introduce complex formulae for the calculation and specialist taxation advice should be sought in these cases.

The Government’s note can be found here.

David Hoey
David Hoey, Partner

Contact: David Hoey, Partner  T: 0141 221 8012 


“The level of service has always been excellent, with properly experienced solicitors dealing with appropriate cases" Legal 500

Contact BTO


  • 48 St. Vincent Street
  • Glasgow
  • G2 5HS
  • T:+44 (0)141 221 8012
  • F:+44 (0)141 221 7803


  • One Edinburgh Quay
  • Edinburgh
  • EH3 9QG
  • T:+44 (0)131 222 2939
  • F:+44 (0)131 222 2949