The CWG5 benefits and expenses guide has been published for tax year 2020-21.
Chapters nine and ten of the guide will likely be of most interest to employers that make termination payments in excess of £30,000, as these chapters discuss the new processes for reporting Class 1A NICs on Termination Awards and Sporting Testimonials.
From 6th April 2020, Termination Awards which exceed the tax-exempt threshold of £30,000 will be liable to a Class 1A NIC contribution for those payments that have not already been subject to Class 1 NIC. Effectively, Class 1A will be charged against these payments which fall to be part of taxable earnings.
Within the revised CWG5, there are some useful examples that illustrate how Class 1A NI contributions will be calculated in these circumstances along with reminders that they need to be paid and reported in real-time and not via the P11D(b) process.
Termination awards that attract a Class 1A NI contribution will be required to be reported separately from any amounts classed as earnings which would be subject to Class 1 NI contributions.
To accommodate this amendment, from 6th April 2020, the Full Payment Submission (FPS) will have separate data items for reporting each of these Class 1 and Class 1A liabilities.
These new rules will also apply to non-contractual and non-customary testimonials arranged by third parties where testimonial payments exceed a £100,00 threshold.
