No! After a great deal of debate, it has been confirmed that the £30,000 tax free allowance for compensation payments is here to stay and so you can continue to make use of it when negotiating an exit package with an employee.

As before, any payments in excess of the £30,000 tax free allowance will be subject to income tax. And, with effect from April 2018, any payments in excess of the tax free allowance will also be subject to employer’s NI contributions.

There will also be a clamp down on the tax treatment of payments in lieu of notice (PILON) from April 2018. It is often the case that an employer will make a tax free PILON to an employee who does not have a PILON clause in their contract of employment: however, this may not be lawful. Where it is agreed before an employee’s employment ends that that employee will receive a PILON then this should have the same effect as a PILON clause in a contract of employment and the PILON should be taxed.