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Update – Employer NICs on Termination Awards

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On 25 April 2019, the National Insurance Contributions Bill was introduced to Parliament. The Bill deals with the national insurance contributions (NICs) treatment of termination payments made by employers to employees in connection with the termination of employment.

What is the current position?

The current position is that (generally) termination awards can be paid tax-free up to £30,000. The remainder of any award is then subject to income tax but not employee or employer NICs. 

How is the tax treatment changing?

The Bill is intended to align employer NICs with the income tax treatment for termination awards, meaning that employer NICs will need to be paid on any part of a termination award above £30,000.

The Bill does not impact the employee NICs treatment of termination awards, statutory redundancy pay and compensation.  That means termination awards will remain exempt from employee NICs.

Further, the £30,000 threshold means that statutory redundancy payments will not be affected (as the maximum is currently £15,750) and compensation for an injury suffered in the workplace will remain free from income tax and NICs.

When are these measures coming into effect?

The measures are to have effect on a date set by HM Treasury, which the HMRC Guidance has stated to be 6 April 2020. However, we are still waiting for confirmation that this date is final. 

In the meantime, HMRC has recently published guidance for employers on the Bill.