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Termination payments- NIC changes.

At the Budget 2016, the government announced that from April 2018, secondary National Insurance contributions (employer (NICs)) will be due on any part of a termination payment that exceeds the £30,000 threshold. Payment would be in real time via payroll.

These payments are already subject to Income Tax. There was no move to affect the exemption below £30,000 which remains non-taxable and NIC exempt. 

Class 1A NIC employer charges on termination payments of more than £30,000 and on sporting testimonials of more than the £100,000 lifetime exemption had also been expected to be included, but due to a delay in legislation, these are now likely to come into effect in April 2019. If it is to be implemented for the 2019-20 tax year, it is more likely, at least as an interim arrangement, to be an annual charge report and payable in July 2020 on a P11D(b) along with other Class 1A NICs liabilities.

However, we know that in the longer term the government is still intending that payment would be in real time via payroll. There is still much to be confirmed, not least because we still do not have a definite implementation date, but if payroll software is going to help employers keep track of the payments they have made and calculate the Class 1A arising then we need that confirmation quickly. We also need very clear and comprehensive guidance to help employers navigate through this process, both for the interim and longer term. 

How will this affect you?
The obvious effect to the employer is the increased NIC liability that will be generated, especially as some termination and compromise agreement packages are often very high depending on the nature of the termination and how senior the individual is. Employers will need to be mindful of this. An employer terminating an employee with £100,000 compensation for loss of office would pay NIC on £70,000 under the new rules which would amount to £9,660 of Employer NIC. Forward planning could be in order and Buzzacott is well placed to offer this.

For further information regarding the article above, please contact Client Payroll Senior Manager, Graham Clow, on +44 (0)20 7556 1430 or alternatively, please complete the form below:

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