NICs on termination payments over £30k
24 July 2018
From April 2019 an employer will be required to pay National Insurance contributions (NICs) on any part of a termination payment that exceeds £30,000. This is not new ‘news’ however conflicting guidance on GOV.UK has been causing some confusion.
The CIPP’s advisory service has received several calls regarding this change, which originally was due to come into operation from April 2018. However, it was announced in November 2017 that the Government will introduce the NICs Bill in 2018 and that the measures it will implement will take effect one year later, from April 2019. In addition to the reforms to the NICs treatment of termination payments, this includes the abolition of class 2 NICs and changes to the NICs treatment of sporting testimonials.
The issue with the guidance on GOV.UK has been reported to both HMRC and GOV.UK asking for a correction to be made as soon as possible.
The incorrect guidance advises that the change is effective from April 2018.
The correct guidance advises that the change is effective one year later than originally planned, from April 2019.
The employer NICs charge on termination payments over £30,000 is achieved through an amendment to section 10 of the Social Security Contributions and Benefits Act 1992. The amendment specifies that a Class 1A charge will apply to termination payments that count as employment income under section 403 ITEPA, provided the earner also pays Income Tax on that termination payment.
This legislation does not set out the way that the Class 1A charge will be collected as this will be covered in secondary legislation in due course. It is anticipated that this Class 1A charge will arise and be paid in ‘real-time’ as part of the employer’s standard weekly or monthly payroll returns and remittances to HMRC rather than after the end of the tax year, as with other Class 1A charges.
When this process has been confirmed we will, of course, let you know.