Termination Tax Tool

Many businesses are currently having to make difficult decisions about their headcount. Where businesses decide to terminate employments, it is important to accurately determine the income tax and NIC treatment to apply on any termination payments being made so that the individual receives the right net payment and tax risk is effectively managed.

One of the key benefits of the tool is that it has been designed to be easily used by non-tax specialists within your organisation, in particular HR professionals or the Payroll department. The questions are simple and so users do not need a detailed knowledge of employment taxes or the termination payments legislation, whilst also providing tax governance of termination payments on a case by case basis.

The other benefits of the tool are:

• Improved accuracy of income tax and NIC treatment of termination payments; 
• Improved controls around termination payments;
• Supporting the consistent application of income tax/NIC positions;
• Reducing the time commitment of the tax and HR departments within the business, particularly if multiple cases to consider with different fact patterns;
• Enabling HR professionals to understand the tax impact of different exemptions available, and highlighting the benefit of these to employees in the communication process;
• Tax legislation changes will be updated in the tool without the business spending time considering them and updating processes as required. Recently, there have been changes to introduce Class 1A NIC (following a deferment) on certain termination payments and changes to the value to use for monthly pay periods for PENP calculations; and
  
• Triaging complex cases to the tax department; this allows governance of the termination payment process without tax teams directly being involved in simple cases. This is of particular importance for organisations within the Senior Accounting Officer regime.
  

The tool provides the user with a bespoke report that:

• provides a clear and simple summary of the termination payments and the relevant tax and NIC treatment which can be used to instruct payroll correctly;
• includes detailed explanations of the tax technical positions applied; and
• includes a full record of information that the user has entered, so the report can be used as a standalone audit trail of the tax treatment of the payments.