After a 2 year delay, the National Insurance Contributions (NICs) rules affecting termination payments are changing with effect from 6 April 2020.

The new rules will apply to termination payments over £30,000 that are paid to employees on or after 6 April 2020. The excess of termination payments above £30,000 (which is already subject to income tax) will be subject to employer’s NICs (as Class 1A contributions). This aligns the rules for income tax and employer NICs. Only employer NICs will be payable on termination payments above £30,000, no employee contributions will be payable. The changes mean that employers will have an extra cost of 13.8% on the excess over £30,000. Unlike other payments of Class 1A NICs (typically paid annually in relation to benefits in kind reported on form P11D) employers will be required to pay the Class 1A NICs on termination payments through the Real Time Information/PAYE system at the time the termination payment arises. Termination payments paid in the limited time prior to 5 April 2020, can still be paid free of NICs. These changes will result in additional costs for employers when terminations occur and to the extent possible, employers may wish to consider the timing of termination dates and dates upon which termination payments are made to anticipate these changes.