A Month In UK Employment Law - November 2016

NEWS & LEGISLATION UPDATE

Taxation of termination payments draft legislation published

At present, in certain circumstances the first £30,000 of a termination payment is exempt from income tax and national insurance ("NIC"). However, there have been concerns for many years about a lack of certainty as to the circumstances when this exemption applies. One key area of confusion is the circumstances under which any part of termination payments relating to notice periods attract the tax exemption. There have been various calls to simplify the rules, and the Government's response to their 2015 consultation on this topic has now been published, including proposed draft legislation.

The key changes the Government plans to make include:

Align the rules for income tax and employer NICs on compensatory payments so that employer NICs will now be payable on the excess of any compensatory payment above £30,000 (in contrast to the current position where the full amount of a compensatory payment is not subject to any employer NICs). This will increase the overall cost of termination payments. Tax and make subject to NICs any payment that the employee would have received if he or she had worked his or her notice period (creating certainty in relation to the tax treatment of payment referable to notice periods but also removing any scope for such payments to attract the tax exemption). However, despite the fact that the £30,000 limit has been in place since 1988, the Government has rejected calls to increase it.

The Government has proposed that the changes come into place in April 2018.

Privacy shield now in force

The long-awaited EU-US Privacy Shield came into force on 1 August 2016. The UK Data Protection Authority (the "ICO") has published a blogpost on the position in relation to EU-US data transfers. Importantly, the ICO warns against relying on the Safe Harbor Framework to ensure the lawful transfer of personal data from the UK to the U.S. Rather, in order to lawfully transfer personal data to the U.S., it advises businesses either to:

use data transfer agreements based on standard contractual clauses; use binding corporate rules; or participate in the Privacy Shield. However, the ICO has caveated this advice by referring to pending ECJ decisions which may impact the validity of standard contractual clauses and binding corporate rules, stating that there is still uncertainty about the Privacy Shield in light of the Article 29 Working Party's various concerns (the Article 29 group contains representatives from each of the EU member states' data protection authorities). While this uncertainty remains, there is still no "risk-free" method for data transfers to the U.S.

The Privacy Shield will be reviewed in May 2017 and the Article 29 Working Party has stated that data protection authorities in the EU will not challenge the adequacy of the Privacy Shield until at least after this review.

In addition, an Irish privacy advocacy group, Digital Rights Ireland, has filed a legal challenge against the Privacy Shield, stating that it provides inadequate protections. A hearing on the challenge is not expected for at least another year.

Corporate Governance inquiry launched

Following recent high profile investigations into the management and businesses of BHS and Sports Direct, the Business, Innovation...