Termination Payments Legislation

Termination Payments Legislation, introduced on 6th April 2020, confirmed that a termination payment of more than the £30,000 exemption for tax, now attracts a Class 1A NIC liability at 13.8% on the balance above £30,000. Your RTI submissions indicate that you made tax-free payment(s) of £30,000 or more, but did not return any Class 1A NICs due if those payments were indeed Termination payments.

Post Employment Notice Pay (PENP) legislation was also introduced on 6th April 2018. When making any termination payment, please consider what the payment is for and whether there is a charge to income tax and NICs e.g., holiday and pay in lieu of notice are taxable, whereas termination payments due to an injury or illness may not be.

An alternative method of calculation was introduced in April 2021, where an employee's pay period is defined in months, but their contractual notice period or post-employment notice period is not a whole number of months.

For help calculating termination payments and considering if there is a charge to tax; visit GOV.UK and search "Changes to the treatment of termination payments" and "Tax on termination payments".

Make sure you review all payments exceeding £30,000 and ensure the correct treatment of tax and NICs is returned.