Cookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.
New NIC treatment of termination payments
Newsletter issue - June 2019
The National Insurance Contributions Bill was introduced into Parliament on 25 April 2019. The Bill contains provisions designed to align the income tax and national insurance contributions (NICs) treatment of termination awards and sporting testimonials, closing a loophole which currently allows effective tax planning. If enacted, the new rules are expected to take effect from April 2020.
HMRC believe that 'the current misalignment incentivises well advised employers to disguise final payments as compensatory termination payments that benefit from a NICs exemption'. Consequently, the new provisions will affect businesses that structure termination payments to reduce the tax and NICs liability with effect from 6 April 2020.
Broadly, the Bill introduces a new 13.8% Class 1A Employer NICs charge to any part of a termination award or payment from a sporting testimonial, that is already income tax liable.
Any income derived from termination awards or sporting testimonials will remain free from employee NICs.
Background
A termination award is a payment received in connection with the termination of a person's employment.
At Budget 2016, the government announced that it would reform the income tax and NIC treatment of termination awards. Currently, certain forms of termination awards are exempt from employee and employer NICs and the first £30,000 may be free from income tax.
The Bill will align the employer NIC treatment of termination awards in excess of £30,000, with the income tax treatment for such payments.
The provisions do not affect the:
- employee NIC treatment of termination awards
- NIC treatment of statutory redundancy pay and compensation
Termination awards will remain exempt from employee NICs. The £30,000 threshold ensures that:
- no statutory redundancy pay on its own will be affected
- compensation for injury suffered in the workplace will remain free from Income Tax and National Insurance contributions
The income tax changes were made in the Finance (No 2) Act 2017 and took effect from 6 April 2018.
Further information on these changes can be found on the GOV.uk website here.
JOIN OUR NEWSLETTER
Sign up with your email to get updates about
resources releases, tax news and special offers.
- GET A FIXED QUOTE
- BUSINESS ADVICE
- PERSONALISED SERVICE
Saving money on your Mileage and Tax Bill
Are you like many of our clients, somewhat struggling at keeping track of your mileage to offset... Read More
Posted on Wed, 19 Aug 2015
TWITTER
Tweets by @OWSupportOne of the headline areas of tax reform in the Autumn Budget surrounded Capital Gains Tax. With rates altered by the Chancellor, it was one of the...
Tax rules for individuals and companies using alternative finance are to change. The Government released plans for reform on the day of the Autumn...
With Christmas soon arriving, you may be planning a festive party for your employees or on behalf of the company you work for....
Plans to change tax compliance rules for charities are moving forward, as the new Government picks up proposals for reform to prevent misuse....
Q: I own a second home worth £400,000, which I bought for £250,000 and I have shares valued at £50,000, which I purchased for...
19 December - For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you’ll...