From 6 April 2011, the rules for taxing termination payments over £30k will change. The change will only affect tax payers paying tax at 40 or 50%. Under current arrangements, higher rate tax payers can defer payment of tax on the part of a termination payment in excess of £30k. The way this works is the employer taxes the amount over £30k at basic rate (20%) and the employee accounts for any higher rate tax due in their tax return.
From 6 April 2011, employers will have to use tax code – OT instead of BR. This will result in tax payers being taxed at their marginal rate (40% for higher rate tax payers, 50% for additional rate tax payers) on termination payments over £30k.