Tax on termination payments
How tax and National Insurance are deducted
Any tax and National Insurance due on your termination payment will be taken automatically by your employer in your final payslip.
Your employer will put any taxable parts of your termination payment through their payroll and deduct any Income Tax or National Insurance under Pay As You Earn (PAYE).
If you get your termination payment after you have got your P45, your employer will use an ‘0T’ tax code. Tax will be deducted on the assumption that you have used up your personal allowance for the current tax year.
If your termination payment means your total income for the year is higher than in the previous year, you may pay more tax than usual. You can see an estimate of how much tax you’ll pay over the whole year.
If you complete a Self Assessment tax return, include your termination payment as ‘additional information’.
If you need support
You can get help if you do not understand something about the way you have been taxed.
If you think that you’ve paid too much tax or you think that your termination payment has not been taxed in the right way, contact HMRC.