From 6 April 2018 changes have been introduced by the HMRC to termination payment processing. What does this mean for you as an employer?
Any payment(s) made under a termination agreement will be subject to Employee Tax, Employee NI and Employer’s NI deductions. For example; Payments in Lieu of Notice (PILON) will be treated as earnings and therefore subject to PAYE and National Insurance contributions up to a value of £30,000. Previously these payments were not subject to all these deduction types.
Employers need to review their current payroll platforms to ensure the applicable pay components are correct and reflect the changes. Alternatively, new pay components should be set up for any termination payments made from 6 April 2018
The HMRC’s proposed change, whereby payments exceeding the £30,000 threshold were due to attract Employer’s NI only on the excess, have been postponed until 6 April 2019. The employee will not be subject to NI deductions (on the excess) but tax deductions will still apply.
At present HMRC have not issued any guidance on how software should be updated to reflect the April 2018 change or if the RTI process might be subject to change too.
Payroll Staff Awareness
As an employer, it would be prudent to ensure your payroll staff or outsourced provider are aware of these changes. If you outsource your payroll to RSM, we can confirm your nominated contact has received appropriate training / guidance on the upcoming changes.
If you manage your payroll process in house, you must ensure all applicable staff are fully aware, such as HR and legal, of the initial changes effective from 6 April 2018 and the proposed changes on 6 April 2019.
If you would like to check that you are treating termination payments correctly, please contact our Account Management team or your usual RSM contact for assistance.
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