Termination of Foreign Services Tax Exemption

On 10 August 2016, the government published a consultation on draft legislation to simplify the tax and National Insurance (NICs) treatment for termination payments. With the aim of a simpler and fairer system, the changes came into effect in April 2018. The Foreign Services tax exemption spared termination payments from tax and NICs where an employee had worked entirely overseas, or partially exempted the payment where an employee had worked both overseas and in the UK for the employer.

Since the changes came into effect, termination payments for employees who have worked overseas but who are subsequently made redundant in the UK are subject to tax to the extent the payment exceeds the £30,000 exemption limit. The NIC treatment will depend on the coverage in place at the time of termination.

As a result of this change, employers have been greatly impacted, resulting in terminations being more costly.

If you are unsure or you require any assistance or further information on the rules, please do not hesitate to contact us.