An update to the changes affecting the NIC treatment of termination payments

30 November 2017

In our previous articles we highlighted the government’s intention to align the tax and National Insurance Contributions (NIC) treatment of qualifying termination payments from 6 April 2018, so that employer’s NIC would be charged on all termination payments over the £30,000 threshold where income tax is payable.

The government has now announced that this major change will be delayed and will now take effect from 6 April 2019.

This does not change the new Post Employment Notice Pay (PENP) rules which are still expected to be introduced from 6 April 2018 and mean that non-contractual payments in lieu of notice will be taxable from 6 April 2018. It is also the Government’s intention to make all non-contractual payments in lieu of notice subject to Class 1 NIC under the PENP rules from 6 April 2018 and we understand that this NIC change is unaffected and will still take effect on 6 April 2018.

While the delay in the alignment of the tax and NIC treatment of qualifying termination payments means that employers making qualifying termination payments up until 5 April 2019 will now not see an increase in their employer NIC costs, this does mean that employers are going to have to deal with three different sets of rules applying across three consecutive tax years. This is likely to generate confusion and make it more difficult for changes to payroll and HR systems to be made.

If you have any questions about this please do not hesitate to contact Lee Knight or your normal RSM contact.