How could changes to tax-free termination payments affect employers?

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As part of the Summer Budget, the Chancellor announced plans to change the tax treatment of termination payments and the £30,000 golden egg exemption in order to simplify things. Matt Gingell assesses whether or not the proposals will be for the better. It is a common misconception that all payments on termination of employment qualify for a £30,000 tax exemption. The exemption only applies if the payment is not otherwise chargeable to income tax. To determine this, you need to ask yourself what the payment is for. Generally, contractual payments will be subject to income tax and national insurance contributions (NICs). Other payments relating to the termination of employment may only be liable to tax on the amounts exceeding £30,000 and may be completely exempt from NICs. This general distinction is not very helpful, however, because there are lots of exceptions. Payments for restrictive covenants, which prohibit competitive activity, and confidentiality are subject to tax and NICs. Payments for retirement are caught too. On the other hand, genuine redundancy payments, even if they are paid under a contractual redundancy policy, do attract the £30,000 tax exemption. Also, payments to employees on account of their di