Termination payments update

21st February 2020

Following the introduction of the post-employment notice pay rules, which came into effect from 6 April 2018, there is one further change which employers will need to consider from 6 April 2020.

Prior to 5 April 2020 only income tax will be due on termination payments which exceed £30,000. However, following changes to the National Insurance legislation any payments made in excess of £30,000 will not only be liable to income tax but also Class 1A National Insurance of 13.8%. At the time of writing we are still awaiting details of any supplementary reporting which will need to be made to HM Revenue & Customs. However, the Class 1A National Insurance liability will need to be paid in ‘real time’ for payroll purposes.

Employers will need to consider the above change and the additional cost when terminating an individual’s employment. If an employer is looking at any restructuring, which may result in a reduction in ‘head-count’, consideration should be given to bringing forward and termination dates, including the payment of any termination packages to before 6 April 2020. Doing so may help to provide savings of National Insurance.

Nick Bustin

Employment Tax Director
+44 20 7969 5578
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