Is your business planning redundancies?

Price Mann • March 9, 2022

Is your business planning redundancies?

How termination payments are taxed.

We may only be three months into 2022 but plenty of big employers – both here in the UK and overseas – are making employees redundant for a myriad of reasons.

OVO Energy is reportedly trying to control costs by cutting 1,700 jobs as gas market prices soar to record highs, Tesco is in the process of axing 1,600 jobs as part of a business remodel, and Peloton has also said it will cut about 2,800 jobs globally due to a drop in demand for its products.

In the three months to 30 November 2021, however, the UK’s redundancy rate was a record low following the end of the furlough scheme. But the tide may now be turning and employers that are going through the same process as the likes of OVO, Tesco and Peloton should be aware of how termination payments work in 2022.

These payments are made to an employee in relation to the termination or loss of their employment, such as when you make members of staff redundant. We’ll go through everything in layman’s terms to give you an idea of what to expect, but you might need our advice to calculate how individual packages should be paid and taxed.

Two types of termination payments

For tax purposes, there are two categories of pay that can be made after you terminate an employment contract. The first is the general employment earnings that an employee would have received if they were still working in the notice period: outstanding salary/wages, payment in lieu of notice (PILON) if relevant, and any holiday pay for instance.

Much of this money is referred to as post-employment notice pay (PENP) and is always subject to income tax and National Insurance contributions (NICs). Prior to 2018, there were exemptions which could appear to be rather arbitrary, coming down to how contracts were worded.

The second category is termination payments. These directly relate to the termination of employment, so they include things like compensation for loss of office.

How tax is applied

You might have a £30,000 tax-free figure in mind, and this broadly applies today. However, the rules changed in 2018 and more changes came into effect from April 2020, affecting what counts within the £30,000 allowance. When you pay an employee, you are making redundant a final termination sum, this is made up of these two categories of payment we have just outlined.

If all of the money is classed as PENP or other general earnings, such as benefits-in-kind – like keeping a company car – or accrued holiday pay, the cash value for it is all considered general earnings and taxed accordingly. No £30,000 tax exemption comes into play.

If only some of the final payment is PENP and other general earnings, then this part is taxed as general earnings. But that leaves a further aspect of the payment which the £30,000 tax exemption can be applied against. So, up to the next £30,000 of payment is tax-free for both PAYE and NICs purposes.

Costs about to increase

As has long been the case, any excess above this £30,000 would again become subject to income tax for the employee. Until April 2020, that was the end of the tax liability on this part of the termination payment with no NICs liability arising. This remains the case for the employee.

Class 1A employers’ NICs are now payable on termination payments in excess of £30,000, making some redundancies far more expensive for the employer than previously. Class 1A NICs are currently due at 13.8%, rising to 15.05% from next month.

Unlike other class 1A NICs associated with taxable P11D benefits, which are payable once a year on 19 or 22 July following the tax year-end, this class 1A NICs liability will be collected through real-time information/PAYE at the time of the termination payment, resulting in additional cashflow pressure. HMRC will usually charge late-payment interest and penalties if it is not paid promptly and correctly.

How the PENP calculation works

To calculate the PENP, the following statutory formula applies:

PENP = (monthly basic pay (BP) x unworked notice period (D)) divided by the number of days in the last pay period (P) less any payments or benefits in connection with the termination already taxed elsewhere (T).

Basic pay includes any amounts given up in salary sacrifice arrangements, but excludes benefits-in-kind, commissions and bonuses among other payments.

T includes the value of a contractual termination payment, such as a payment-in-lieu of notice (PILON), but does not include accrued holiday, termination bonuses or ‘golden handshakes’.

In practice, if you are already planning to tax the employee PILON and the value of the PENP is less than this or the same, there might be nothing else to tax. If this is not the case, you will need to consider what other payments are being made to the employee and their tax treatment, including whether it would fall within the £30,000 exemption. This is best illustrated through an example.

Example

Bruce is notified on 15 February 2022 of your intention to make him redundant, and his last day is agreed as 28 February. His contract states he should receive three months’ notice. D is therefore 76 days as his contractual notice period goes up to 15 May 2022.

Bruce earns £60,000 a year in basic salary, so his monthly ‘BP’ amount will be £5,000. And his last pay period was the full month of January which was 31 days – the ‘P’. However, since D is not a whole number of months, 30.42 should be used as P.

Bruce will not be paid in lieu of notice, but you have instead agreed to pay him £24,000 as an ex-gratia lump sum, plus £10,000 for loss of notice and £2,000 in accrued holiday pay. In total, he will receive £36,000. In order to work out how much he should be taxed on this amount, the statutory formula to work out the PENP needs to be followed. Applying the formula gives Bruce a PENP figure of £12,491. As he has not been made any taxable payments in lieu of notice, T is zero and nothing is deducted from this figure.

The full PENP of £12,491 is therefore taxable as earnings. The £2,000 from accrued holiday pay also remains fully taxable as earnings. The balance of £21,509 is treated as the ex-gratia payment and it is not subject to any tax as it is under £30,000.

If the numbers were different and the outstanding ex-gratia payment had been, say, £40,000, then further income tax would have been due on the excess above £30,000. You would be liable for an additional 13.8% (15.05% from 6 April 2022) in class 1A NICs on the £10,000 excess.

Long-term planning

With the UK economy experiencing turbulence due to the effects of the pandemic and Brexit, many employers are facing difficult decisions to control costs. The cost-of-living crisis caused by a cocktail of rising inflation and soaring energy prices also means it might be very harsh to consider cutting staff at this time.

And then there’s the 1.25% increase to all NICs rates kicking in from April 2022, which has to be factored into the equation to make redundancies this year. That said, if you think there is a negative outlook for your business in 2022/23, it would be wise to explore your options now around making redundancies.

The pay and tax calculations involved with termination payments are complex, but we can help you with managing costs within your business.

Speak to us about termination payments.

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Managing risk in your investment portfolio

By Price Mann • September 17, 2025

Managing risk in your investment portfolio Tips for a balanced investment approach. Investment markets rise and fall, yet the goals that matter to you – retirement security, children’s education, a comfortable buffer against the unexpected – remain constant. Managing risk means giving each goal the best chance of success while avoiding avoidable shocks. You can do that by holding the right mix of assets for your timeframe, using tax wrappers efficiently, and controlling costs and emotions. The 2025/26 UK tax year brings unchanged ISA and pension allowances. This guide explains the key steps, such as diversifying sensibly, rebalancing with discipline, safeguarding cash, and monitoring allowances, so you can stay on track whatever the markets deliver. It is an information resource, not personal advice. Start with a clear plan Define goals and timeframes: Decide what each pot of money is for (for example: house deposit in three years, retirement in 20 years). Time horizon drives how much short-term volatility you can accept. Short-term goals usually need more cash and high-quality bonds; long-term goals can justify more equities. Set your risk level in advance: Ask yourself two questions. Risk capacity: How much loss could you absorb without derailing plans (linked to your time horizon, job security and other assets)? Risk tolerance: How do you feel about market swings? Use a more cautious mix if you are likely to sell in a downturn. Ring-fence cash needs: Keep 3-6 months’ essential spending in easy-access cash before you invest. This reduces the chance of selling investments at a low point to meet bills. Choose simple, diversified building blocks: Broad index funds and exchange-traded funds (ETFs) covering global equities and high-quality bonds provide instant diversification at low cost. Avoid concentration in a single share, sector or theme unless you are comfortable with higher risk. Diversification: Spread risk across assets, regions and issuers Diversification reduces the impact of any single holding. Practical ways to diversify include the following. Assets: Use both growth assets (equities) and defensive assets (investment-grade bonds, some cash). Regions: Combine UK and global holdings. Many UK investors hold too much domestically; global funds spread company and currency risk. Issuers: In bonds, mix UK gilts and investment-grade corporate bonds to diversify credit exposure. Currencies: Equity funds are commonly unhedged (currency moves add volatility but can offset local shocks). For bonds, many investors prefer sterling-hedged funds to lower currency risk. A diversified core helps the portfolio behave more predictably across different market conditions. You can add small “satellite” positions if you wish, but keep any higher-risk ideas to a modest percentage of the whole. Use tax wrappers to reduce avoidable tax and trading frictions Efficient use of ISAs and pensions is one of the most effective risk-management tools because it protects more of your return from tax. ISAs (individual savings accounts) Annual ISA allowance: £20,000 for 2025/26. You can split this across cash, stocks & shares and innovative finance ISAs. Lifetime ISAs (LISAs) are capped at £4,000 within the overall £20,000. Junior ISA (for children under 18): £9,000 for 2025/26 (unchanged). ISAs shield interest, dividends and capital gains from tax. Rebalancing inside an ISA does not create capital gains tax (CGT), which helps you maintain your chosen risk level at lower cost. Note: There has been public discussion about potential ISA reforms, but the current 2025/26 allowance is £20,000. If government policy changes later, we will let you know. Pensions (workplace pension, personal pension/SIPP) Annual allowance: £60,000 for 2025/26 (subject to tapering for higher incomes; see below). You may be able to carry forward unused annual allowance from the three previous years if eligible. Tapered annual allowance: If your adjusted income exceeds £260,000 and threshold income exceeds £200,000, the annual allowance tapers down (to a minimum of £10,000 for 2025/26). Money purchase annual allowance (MPAA): £10,000 for 2025/26 once you’ve flexibly accessed defined contribution benefits (for example, taking taxable drawdown income). Tax-free lump sum limits: The lifetime allowance has been replaced. From 6 April 2024, the lump sum allowance (LSA) caps total tax-free pension lump sums at £268,275 for most people, and the lump sum and death benefit allowance (LSDBA) is £1,073,100. Pensions are long-term wrappers designed for retirement. Contributions usually attract tax relief and investments grow free of UK income tax and capital gains tax while inside the pension. Personal savings: Interest allowances Personal savings allowance (PSA): Basic-rate taxpayers can earn up to £1,000 of bank/building society interest tax free; higher-rate taxpayers up to £500; additional-rate taxpayers do not receive a PSA. Starting rate for savings: Up to £5,000 of interest may be taxable at 0% if your other taxable non-savings income is below a set threshold. For 2025/26, that threshold is £17,570 (personal allowance of £12,570 plus the £5,000 starting rate band). Dividends and capital gains outside ISAs/pensions Dividend allowance: £500 for 2025/26 (unchanged from 2024/25). Dividend tax rates remain 8.75%, 33.75% and 39.35% for basic, higher and additional-rate bands, respectively. The annual capital gains tax (CGT) exempt amount , £3,000 for individuals (£1,500 for most trusts). CGT rates from 6 April 2025: For individuals, 18% within the basic-rate band and 24% above it, on gains from both residential property and other chargeable assets (carried interest has its rate). HMRC examples confirm the £37,700 basic-rate band figure used in CGT calculations for 2025/26. CGT reporting reminder: UK residents disposing of UK residential property with CGT to pay must report and pay within 60 days of completion. Other gains are reported via self assessment (online filing deadline is 31 January following the tax year; if you want HMRC to collect through your PAYE code, file online by 30 December; payments on account remain due 31 January and 31 July). Why this matters for risk: Using ISAs and pensions lowers the drag from tax, allowing you to rebalance and compound returns more effectively. Outside wrappers, plan disposals to use the £3,000 CGT allowance and each holder’s tax bands and consider transfer to a spouse/civil partner (no CGT on gifts between spouses) before selling where suitable. Bonds and cash: Interest-rate and inflation considerations Interest rates: The Bank of England reduced the Bank Rate to 4% at its August 2025 meeting. Bond prices can move meaningfully when rates are high or changing, especially for longer-dated bonds. Consider the duration of bond funds and whether a mix of short- and intermediate-duration exposure suits your time horizon. Inflation: Headline Consumer Price Index (CPI) inflation was 3.6% in the 12 months to June 2025, while the CPI including owner occupiers’ housing costs (CPIH) rose by 4.1%. Inflation affects the real value of cash and bond coupons, and can influence central bank policy, affecting bond prices. Review whether your mix of cash, index-linked gilts and conventional bonds remains appropriate as inflation and interest-rate expectations evolve. Cash strategy: For short-term needs, spread deposits to respect Financial Services Compensation Scheme (FSCS) limits. For longer-term goals, excessive cash can increase the risk of falling behind inflation. Control costs and product risk Keep fees low: Ongoing charges figures (OCFs), platform fees and trading costs compound over time. Favour straightforward funds and avoid unnecessary expenses. Understand the product: Structured products, highly concentrated thematic funds or complex alternatives can behave unpredictably. If you use them, size them modestly within a diversified core. Use disciplined trading rules: Avoid frequent tinkering. Set rebalancing points (see below) and resist acting on short-term news. Rebalancing: Why, when and how Markets move at different speeds. Without rebalancing, a portfolio can “drift” to a higher or lower risk level than you intended. Follow this simple rebalancing framework. Invest in something that will rebalance automatically (i.e. certain ETFs) Frequency: Review at least annually. Thresholds: Rebalance when an asset class is 5 percentage points away from target (absolute) or 20% away (relative). Tax-aware execution: I prefer to rebalance inside ISAs and pensions. Outside wrappers, use new cash or dividends where possible; then consider selling gains up to the £3,000 CGT allowance and factoring in dividend and savings allowances. Implementation tip: If markets are volatile, use staged trades (for example, three equal tranches a few days apart) rather than one large order. Safeguard cash and investments with the right protections FSCS protection (cash deposits): Up to £85,000 per person, per authorised bank/building society group is protected. Temporary high balances from specific life events can be covered up to £1m for six months. The Prudential Regulation Authority has consulted on raising the standard deposit limit to £110,000 and the temporary high balance limit to £1.4m from 1 December 2025 (proposal stage at the time of writing). FSCS protection (investments): If a regulated investment firm fails and your assets are missing or there is a valid claim for bad advice/arranging, compensation may be available up to £85,000 per person, per firm. This does not protect you against normal market falls. Operational risk checks: Use Financial Conduct Authority authorised providers, check how your assets are held (client money and custody), enable multi-factor authentication, and keep beneficiary and contact details up to date. Currency risk: When to hedge For equities, many long-term investors accept currency fluctuations as part of the growth engine, since sterling often weakens when global equities are stressed, partly offsetting losses. For bonds, many prefer sterling-hedged funds to keep defensive holdings aligned with sterling cashflow needs. A blended approach works: unhedged global equities plus mostly hedged bonds. Behavioural risks: Keep decisions steady Common pitfalls include chasing recent winners, selling after falls or holding too much cash after a downturn. Tactics to keep you on track include: automate contributions (regular monthly investing), which spreads entry points write down rules (what you will do if markets fall 10%, 20%, 30%) separate spending cash from investments so you do not sell at weak prices to fund short-term needs use portfolio “buckets” in retirement. Retirement planning: Sequence-of-returns risk and withdrawals If you are drawing an income from investments consider the following. Hold a cash buffer (for example, 12–24 months of planned withdrawals) to avoid forced sales during sharp market falls. Be flexible with withdrawals: Pausing inflation-indexing or trimming withdrawals after a poor market year can help portfolios last longer. Use tax bands efficiently: Consider the order of withdrawals (pension, ISA, general investment account) to make use of personal allowance, PSA, dividend allowance and the CGT annual exempt amount. Take care around the MPAA if you are still contributing to pensions after accessing them. Putting it together: A repeatable checklist Confirm goals and time horizons. Check emergency cash (3-6 months). Map your target asset allocation. Use wrappers first: Fill ISAs and workplace/personal pensions as appropriate. Keep costs low: Prefer broad index funds/ETFs. Set rebalancing rules: Annual review + thresholds. Document tax items: Monitor dividend/CGT use; note 60-day property CGT rule; plan for 31 January/31 July self assessment dates if relevant. Review protection limits: Spread larger cash balances across institutions in line with FSCS; note proposed changes for late 2025. Schedule an annual review to update assumptions for interest rates, inflation and any rule changes. Get in touch if: you are unsure how to set or maintain an asset allocation you plan to draw income and want to coordinate wrappers and tax bands you expect large one-off gains or dividends and want to plan disposals or contributions you have concentrated positions (employer shares, single funds) and want to reduce single-asset risk tax-efficiently you are considering more complex investments. Wrapping up Risk management is not a one-off task but an ongoing discipline. By defining clear objectives, spreading investments across regions and asset classes, using ISAs and pensions to shelter returns, and reviewing allocations at least annually, you create a framework that limits surprises and keeps decisions rational. Document key dates – self assessment payments on 31 January and 31 July, the 60-day CGT rule for property, and the annual ISA reset on 6 April – so tax never forces a sale at the wrong time. Check deposit limits and platform safeguards for peace of mind, and keep a written record of your rebalancing rules to prevent knee-jerk trades. If life events or regulations change, revisit your plan promptly. A measured, systematic approach lets your portfolio work harder while you stay focused on the goals that matter most. Important information This guide is information only and does not account for your personal circumstances. Past performance is not a guide to future returns. The value of investments and income from them can fall as well as rise, and you may get back less than you invest. Tax rules can change and benefits depend on individual circumstances. If you need personalised advice, please contact a regulated financial adviser. If you’d like advice on managing your portfolio, get in touch.