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    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Being an employer → Termination employer-side

    Termination Employer-Side — P45 + Worker Protection Act 2023 + Modern Slavery

    Employer-side termination obligations: issue P45 within 1 working day of the leaving date (PAYE Regulations 2003 reg 36). For settlement payments, apply PILON/PENP rules (fully taxable since April 2018; cross-reference our redundancy + termination cluster). Class 1A NIC on the slice of qualifying termination payments above £30,000 since 6 April 2020 (NICs (Termination and Sporting Testimonials) Act 2019). New positive legal duty effective 26 October 2024 under the Worker Protection (Amendment of Equality Act 2010) Act 2023: take reasonable steps to prevent sexual harassment of workers; ET can uplift compensation by up to 25%; EHRC enforcement. Modern Slavery Act 2015 s.54: businesses with global turnover >£36m must publish an annual modern slavery + human trafficking statement.

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

    In plain English

    Termination has three intersecting employer-side stacks. (1) Tax: cross-reference our redundancy + termination cluster for the full £30k / PILON / PENP / Class 1A picture. From the employer angle: deduct PAYE + NIC on contractual amounts and on PENP; apply the £30k exemption to genuine ex-gratia within s.401; pay 15% Class 1A on the slice above £30k. Issue P45 within 1 working day of leaving (PAYE Regs 2003 reg 36); part 1 to HMRC via FPS, parts 1A + 2 + 3 to the employee. (2) Worker Protection Act 2023 preventative duty. Effective 26 October 2024, employers have a positive legal duty to take 'reasonable steps' to prevent sexual harassment of workers — not just respond to complaints. EHRC issued statutory guidance + can issue investigation notices + enforceable Section 23 agreements. Employment Tribunal can uplift any sexual-harassment compensation by up to 25% where employer breached the preventative duty. This applies during employment AND at termination — settlement agreements covering harassment-related claims now sit against the new preventative-duty baseline. (3) Modern Slavery Act 2015 s.54. Commercial organisations supplying goods or services in the UK with global turnover >£36m must publish an annual statement disclosing steps taken to prevent slavery + human trafficking in their business + supply chain. Approved by board; signed by director; published prominently on UK website. Affects employer-side termination indirectly through whistleblowing + corporate-responsibility reporting. Practical termination checklist: (a) determine reason — redundancy / resignation / dismissal / mutual; (b) tax-structure any settlement payment correctly per redundancy cluster; (c) issue P45 within 1 working day; (d) settle accrued holiday + final salary; (e) preserve harassment-related preventative-duty evidence; (f) update modern slavery statement if applicable.

    How it works

    P45 mechanics

    PAYE Regulations 2003 reg 36: employer must give P45 'on the day the employee ceases to be employed or, if it is not reasonably practicable to do so on that day, without unreasonable delay'. In practice = within 1 working day. Part 1 to HMRC via FPS leaver indicator; parts 1A + 2 + 3 to employee. Late P45 = ITEPA penalties + RTI penalty exposure.

    Tax structuring at termination

    See dedicated cluster (/redundancy-termination). Key employer-side mechanics: identify contractual amounts (taxed in full PAYE+NIC); calculate PENP (s.402D ITEPA — see PILON page); apply £30k exemption to s.401 slice; pay Class 1A 15% on excess above £30k from April 2020. Settlement agreement: legal fees up to ITEPA s.413A limit exempt; outplacement (s.310) exempt.

    Worker Protection Act 2023 — preventative duty

    Effective 26 October 2024. EA 2010 amended to require employers to take reasonable steps to PREVENT sexual harassment (not just respond). 'Reasonable steps' = risk assessment + policy + training + complaint procedures + active monitoring + culture work. EHRC statutory guidance + enforcement. ET uplift up to 25% on harassment compensation where breach. Settlement agreements must not silence reporting in ways that breach NDA-misuse principles.

    Modern Slavery Act s.54 statement

    Threshold: commercial org supplying goods/services in UK with global turnover > £36m. Annual statement disclosing steps taken (or stating none taken). Must cover: business structure + policies + risk assessment + due diligence + KPIs + training. Approved by board; signed by director (or equivalent). Published on UK website homepage link. Home Office Modern Slavery Statement Registry voluntary repository.

    Settlement agreement requirements

    Per redundancy cluster: written; signed; complaints specified + waived; employee took independent legal advice; advisor named + insured. Worker Protection Act overlay: harassment-related agreements scrutinised against preventative-duty evidence + NDA-misuse principles (SRA + Law Society warning notices). EHRC sexual harassment guidance prohibits using NDAs to silence victims from regulatory + criminal reporting.

    Final-pay payroll

    Final FPS with leaver indicator + leaving date + accrued holiday pay + statutory + contractual amounts. Issue final payslip + P45. If settlement payment in separate later transaction: include in subsequent FPS or treat as 'after leaving' payment using BR tax code on relevant slice (PAYE54000+). Class 1A on £30k+ reported via P11D(b).

    Who this applies to + key conditions

    Statute + manual references

    Primary: Income Tax (PAYE) Regulations 2003 (SI 2003/2682) reg 36 — P45 deadline; ITEPA 2003 ss.401-416 (termination payments — see redundancy cluster).

    Related: Finance (No. 2) Act 2017 — PILON / PENP / Foreign Service Relief abolition; National Insurance Contributions (Termination Awards and Sporting Testimonials) Act 2019 — Class 1A on £30k+; Worker Protection (Amendment of Equality Act 2010) Act 2023 — preventative duty effective 26 October 2024; Equality Act 2010 ss.40-40A (amended) — harassment + preventative duty; Modern Slavery Act 2015 s.54 — transparency in supply chains (>£36m turnover); Employment Rights Act 1996 — unfair dismissal + redundancy framework

    HMRC manual: PAYE Manual (PAYE54000+ leavers); EIM12950+ termination payments

    Case law: Hasted v Horner (1995) 67 TC 439 — restrictive covenant characterisation (see redundancy cluster)

    Common mistakes + traps

    Worked example

    Omicron Ltd, 60 employees, dismisses Pat after grievance; settles for £45,000 (£25k ex-gratia + £20k contractual notice in lieu)

    Pat dismissed in dispute. Settlement agreed: £25k ex-gratia compensation for loss of office (s.401 qualifying) + £20k payment in lieu of 3-month contractual notice. Pat is 45, higher-rate taxpayer. Pat also raised a sexual-harassment allegation during the dispute.

    1. Step 1 — Tax characterise: £20k PILON = fully taxable PAYE + employee NIC. £25k ex-gratia within s.401 — falls fully within £30k exemption, tax-free to Pat.
    2. Step 2 — Class 1A: s.401 slice £25k is below £30k — no Class 1A liability.
    3. Step 3 — Final payroll: Run final FPS with leaver indicator + £20k PILON taxed at marginal rate via PAYE. £25k tax-free element flowed through after PAYE + NIC analysis.
    4. Step 4 — P45 issued to Pat within 1 working day of leaving date.
    5. Step 5 — Worker Protection Act compliance check: Omicron must evidence reasonable steps taken to prevent harassment BEFORE the allegation. Risk assessment + policy + training records reviewed. If gaps found, ET could uplift any harassment-related compensation by up to 25% IF separate ET claim brought (settlement may waive — but cannot prevent EHRC investigation).
    6. Step 6 — Settlement agreement: drafted to cover all employment claims; harassment-claim waiver scrutinised for NDA-misuse + clear carve-outs for criminal/regulatory reporting.
    7. Step 7 — Independent legal advice for Pat funded by Omicron (typically £350-700 contribution); s.413A ITEPA exemption applies.
    8. Step 8 — Modern Slavery statement: Omicron's turnover ~£20m, below £36m threshold — no s.54 statement required (yet — review annually).

    Outcome: Pat receives £25k tax-free + £20k PILON net of PAYE/NIC. P45 issued day-1. Omicron's harassment preventative-duty evidence is gap-tested + settlement NDA properly bounded. No Modern Slavery filing yet at current turnover.

    How this connects to the rest of the framework

    /redundancy-termination →

    Full £30k / PILON / PENP / Class 1A framework lives in dedicated cluster; this page is employer-side operational view.

    RTI mechanics →

    P45 issued via FPS leaver indicator; settlement payments reported via FPS or after-leaving mechanism.

    Class 1A NIC + mandatory payrolling →

    Class 1A NIC on termination payments above £30k from April 2020; rate matches secondary 15% from April 2025.

    Employee vs worker vs self-employed →

    Termination obligations vary by status — employees get statutory notice + unfair dismissal; workers get less.

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    When must P45 be issued?+
    Within 1 working day of the leaving date per PAYE Regulations 2003 reg 36 ('on the day or without unreasonable delay').
    When did the Worker Protection Act preventative duty start?+
    26 October 2024. Employers must take reasonable steps to PREVENT sexual harassment — not just respond. ET uplift up to 25% on compensation for breach.
    Who has to publish a Modern Slavery statement?+
    Commercial organisations supplying goods or services in the UK with global turnover above £36m (Modern Slavery Act 2015 s.54). Annual statement, board-approved, signed by director, published on UK website.
    Does Class 1A NIC apply to termination payments?+
    Yes — on the slice above £30,000 from 6 April 2020 (NICs Act 2019). Rate now 15% (was 13.8%) from April 2025. Employer-only cost.

    Free + regulated-body resources

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