One could argue it's been a rough few days for Cristiano Ronaldo (especially sitting down with Piers Morgan for 90 mins!), and reports say it could get a lot worse!
After the final part of his two-part interview with Piers Morgan aired, Manchester United are reportedly beginning legal moves to sack the Portuguese star. The Manchester-based club believe Ronaldo breached his contract by doing the interview.
This brings us to a fascinating subject, what are the tax implications of termination payments? (I can hear your excitement!)
A generous tax exemption allows for up to £30,000 in a severance payment to an employee tax-free upon the termination of their employment.
Please note that payments in lieu of notice are taxable and subject to both employee and employer National Insurance Contributions, even if there is a PILON clause in the employment contract.
Termination payments are broke into two parts:
The first is post-employment notice pay (PENP). PENP is the amount of basic income an employee would have earned had they continued to work their notice period in total and is taxable as earnings.
Treat the payment as earnings if there is a contractual PILON.
When an employer makes a PILON pursuant to a discretionary contract, such payments are taxable as earnings.
The second is the remainder of the termination payment. You can make a tax-free payment of up to £30,000. Any amount over £30,000 will be subject to income tax and employer (Class 1A) NICs.
If the PENP is more than the entire termination payment amount, the £30,000 exemption does not apply, and you must pay tax on the total amount.
If the PENP is less than the entire termination payment, you'll be able to exempt up to £30,000 of your payment from tax.
The remainder will be treated as taxable earnings.
Some examples of payments that fall within the £30,000 exemption are;
The following payments are examples that may be exempt from PENP if they do not fall within the £30,000 exemption:
If you, or Cristiano Ronaldo, have any queries regarding the tax implications of termination payments or require any tax advice, please do not hesitate to get in touch.
