Q&As

For the purposes of determining the extent to which a termination payment is subject to tax under the new provisions of Income Tax (Earnings and Pensions) Act 2003, when it comes to calculating post-employment notice pay will it make any difference to how those provisions apply in practice if the employee resigns without giving notice, and if the period of notice required to be given by the employee under the contract of employment is shorter than that required to be given by the employer?

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Published by a ÀÏ˾»úÎçÒ¹¸£Àû Employment expert
Published on: 03 October 2018
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Finance (No 2) Act 2017 enacted a number of changes to the taxation of termination payments, which will apply where an employment terminates on or after 6 April 2018. One of these changes is that the new legislation treats as earnings from employment (ie as taxable) the amount of the termination award paid to an employee that represents the basic pay the employee would have received had the notice period been worked in full.

Under the new provisions:

  1. •

    provision is made for a 'termination award' to be split between elements taxable under ITEPA 2003, s 402B and elements

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Earnings definition
What does Earnings mean?

The annual profits of a company after deduction of tax, dividends to preference shareholders and bondholders. Earnings are usually expressed on a per-share basis (eg 7p), and the earnings per share (EPS) figure is calculated by dividing total earnings by the average number of shares in issue for the relevant accounting period. For example, earnings of £2 million, with 10 million shares in issue would give an EPS of 20p. You may see earnings used in several ways: • reported earnings: the figure in the company’s accounts • underlying earnings: the figure derived from reported earnings by excluding any one-off items (eg profit from the sale of land which is not part of the company’s normal business) • diluted earnings: earnings after adjustment has been made for shares that may be issued in the future if holders of options, warrants and convertibles choose to exercise their rights.

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