NI contributions on Termination Payments

The much anticipated Class 1A National Insurance Contributions (NIC) charge on terminations payments received Royal Assent back in July 2019.

The legislation was proposed in 2017 but was postponed. However, the granting of Royal Assent meant that from 6 April 2020, any employer providing a termination payment in excess of £30000, will be hit with an employers’ NIC liability of 13.8% of the amount over the £30000 threshold. The income Tax exemption remains ensuring that tax is not due on a termination payment up to £30000

Employers will therefore need to factor this additional cost into discussions and negotiations with employees who are leaving and paid in excess of the statutory redundancy amounts.

The change follows on the heels of the changes to Payments in Lieu of Notice (PILON’s). PILON’s have, since 6 April 2018 been subject to the deduction of Income Tax and National Insurance, whether they are contractual or not.

For more details contact Paul Chappell Head of Legislation and Compliance on 03331 123456