The twice-delayed changes to national insurance contributions (NICs) on termination payments are finally scheduled to come into effect in April. Martin Jackson ATT, head of employment taxes at Croner-i, explains
From 6 April 2020, termination payments in excess of £30,000 will become liable to Class 1A NICs at 13.8% and employers will have in-year reporting and payment responsibilities.
To set the context, the current position is that there is a difference in treatment between income tax (PAYE) and NICs on termination payments, which the government is looking to at least partially correct.
Assuming the payment in question is a compensatory figure (as opposed to a contractual entitlement) and that it is not already caught under the ‘post employment notice pay’ provisions introduced in April 2018, it will be tax-free up to £30,000 and thereafter subject to PAYE.
However, at present there is no NIC charge on these payments – the £30,000 threshold only applies for income tax purposes. Such payments are entirely free from NICs regardless of the amount involved.
