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NIC on termination payments and testimonials from April 2020

24 May 2019

After a number of years of hiatus, the Government has finally published a short NIC Bill to update the rules on both termination payments and sporting testimonials – The National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill.

Termination payments

The NIC rules have been out of step with the income tax rules on termination payments since the income tax reforms that took place in April 2018. However, when the alignment takes effect from April 2020, it is helpful that the 13.8% Class 1A NIC charge that is introduced will be calculated on the amount chargeable to income tax under section 403 of ITEPA 2003 (ie the excess of £30,000) – rather than defining the charge in isolation.

It should be noted that the new rules do not affect the current NIC treatment of other types of termination award eg, if subject to Class 1 NIC or exempt under other legislation, this still takes precedence. In addition, there is no corresponding employee’s NIC charge.

There is no detail yet about how the Class 1A NIC will be collected. This is expected in further legislation in due course, however, it is anticipated that this Class 1A NIC will arise and be paid via payroll in ‘real time’ rather than at the end of the tax year.

For employers contemplating restructuring their workforce, there is a clear incentive to complete the exercise and make any necessary termination payments before April 2020.

Testimonial payments

The income tax rules for testimonials for sportsmen and women changed for all awards from 25 November 2015 where the event took place after 6 April 2017. Since, 6 April 2017, all such income has been liable to income tax subject to an exemption of £100,000 that applies if the testimonial is ‘neither contractual nor customary in nature’. The new Bill finally confirms that 13.8% Class 1A NIC will apply to the taxable element of any testimonial payment made after 6 April 2020.

Read the NIC Bill

For help and advice on termination payments, please contact Laura Hurrell and for assistance on any UK or international social security issue please contact George Milmine.

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