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Termination Payments and the Future Treatment of National Insurance Contributions

on Wednesday, 15 May 2019.

Recruitment businesses who terminate the employment of their staff in the future will need to be aware that changes are due to take place from 6th April 2020 as far as the treatment of National Insurance Contributions (NICs) are concerned.

On 25 April 2019, a Bill amending the NICs treatment of termination payments  had its first reading in the House of Commons. On the same date, HMRC published guidance on the Bill.

The Bill amends section 10 of the Social Security Contributions and Benefits Act 1992 (SSCBA 1992) to impose a NICs charge on termination payments that are subject to income tax as employment income of an employed earner under section 403 of the Income Tax (Earnings and Pensions) Act 2003 (that is, termination payments exceeding £30,000). For the charge to apply, the termination payment must be made in connection with the termination of the employed earner's employment but it applies regardless of whether that payment is received by that earner, their spouse, their civil partner, their blood relative or their dependant. The charge is to Class 1A NICs (and so falls on the employer) but, to prevent double taxation, there is an exemption from charge for any amount that is already subject to Class 1 NICs as earnings. In its guidance, HMRC comments that this measure will remove the incentive for employers to seek to categorise payments as termination payments to benefit from the existing exemption from NICs.

The Bill is to receive its second Commons reading on 30 April 2019 and the measures are to have effect from a date to be set by HM Treasury in regulations (stated in HMRC's guidance to be 6 April 2020, as announced as part of the Autumn 2018 Budget).


For more information, please contact Michael Delaney in our Recruitment Law team on 01923 919 316.

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