What did we get up to last month?
We saw that the government has started a consultation on the simplification of the tax and National Insurance treatments of termination payments. Generally speaking, when an employer makes a payment to an employee upon termination of their employment, tax will be paid on all elements of that payment which stem from the employee's employment, as well as payment to which he or she is contractually entitled. On the other hand, payments which do not stem from the employee's employment can be paid tax free up to a limit of £30,000.
There are however a number of exemptions which may apply to ensure that any payments which do not stem from employment can be paid free from tax deductions in their entirety, even on the sum in excess of £30,000. This can include payments made because of the death or disability of the employee, payments made to a registered pension scheme and payments made in respect of certain legal costs.
The government-created Office of Tax Simplification has concluded that the rules currently in place are confusing, complicated and lack certainty, meaning that businesses and individuals could either miss out on a legitimate tax saving, or find themselves facing a tax bill as a result of incorrectly interpreting the rules. It has put forward a number of suggestions for reform, including removing the distinction between the contractual and non-contractual payment and removing some or all of the existing exemptions open to employees.
Inevitably, there is also the suggestion that if the distinction between contractual and non-contractual payments is removed, the £30,000 tax-free allowance would become "unaffordable" and therefore it seems likely that it would be reduced.
In my view, while there are some common areas of confusion (including in particular the distinction between taxable payments in lieu of notice and non-taxable compensation payments for failure to give notice), the current rules are not significantly cumbersome and the current £30,000 tax free allowance can be a useful tool to enable resolution of workplace disputes. It will be interesting to read the outcome of the consultation which closes in October 2015.
This is not the only consultation under way at the moment. The following are also in progress:
- Consultation on closing the gender pay gap
- Consultation on ballot thresholds for strikes in important public services
- Consultation on picketing, intimidation and leverage tactics by unions
- Consultation on hiring agency staff during industrial action
- Consultation on implementing the Posted Workers Enforcement Directive
- Consultation on preventing misuse of the term "apprentice"
- Low Pay Commission consultation on national minimum wage rates
In the light of these, we're expecting associated changes to the law to be introduced in the not too distant future. It's never quiet!
Any new cases to be aware of?
In Plumb v Duncan Print Group Ltd, the Employment Appeals Tribunal has held that there is no obligation on workers who are on sick leave to prove that they are physically unable to take holiday due to their illness in order to be entitled to carry over accrued but untaken statutory holiday to the following holiday year.
However, it also held that workers do not have the right to carry over holiday for an unlimited period and that workers on sick leave can take their holiday within, at most, a period of 18 months from the end of that leave year in which the holiday accrued.
This definitely won't be the end of case law regarding the issue of workers' rights to accrue/take holiday when on long term sickness absence, but it is, for now at least, a useful clarification of the circumstances in which sick leave can be carried over and the maximum length of time during which it will remain part of the workers' accrued entitlement.
The First Tier Tribunal held in Hill v HMRC that a £30,000 payment made to an employee under a settlement agreement was a taxable emolument to employment given that it had been made to him to compensate him for an unfavourable change to his terms and conditions of employment. The employee had argued that the payment was a tax-free compensation payment because it was made in return for his agreement not to issue tribunal proceedings in relation to his employer's failure to consult under TUPE. The Tribunal did not support this contention given the period of time that had lapsed between the TUPE transfer and the contractual change, and the fact that the employee was required to repay part of the payment where he had to leave his employment within two years of receiving the payment.
This is a good example of the possible confusion that can arise on the taxable status of a settlement agreement, and a timely case given the consultation on the tax treatment of termination payments that mentioned above!
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