HMRC has announced that Class 1A National Insurance contribution (NIC) employer charges on termination payments of more than £30,000 and on sporting testimonials of more than the £100,000 lifetime exemption are now due to come into effect in April 2020.
This provision was expected to be included with the other changes to the taxation of termination payments, however this element has now been postponed due to a delay in legislation.
It was previously announced in April that employers will need to pay Income Tax and Class 1 NICs on the amount of the termination payment that represents payment in lieu of notice (PILON) from 6 April 2018, whether or not they are contractual payments.
This change applies to payments, or benefits received on, or after, 6 April 2018 in circumstances where the employment also ended on, or after, 6 April 2018.
The change followed an announcement at Budget 2016 that the government would introduce rules to prevent employers from manipulating the system. The measure is intended to make termination payments fairer by making it clear that all PILONs, rather than just contractual PILONs, are taxable earnings.
Read the full updated policy paper on the tax treatment of termination payments.