Termination and testimonial payments update

25 September 2019

From 6 April 2020, a Class 1A NIC liability will be payable on any part of a termination award or sporting testimonial payment that is liable to income tax and not otherwise subject to NIC. This new rule aligns the NIC treatment with the income tax rules for these types of payments. Our article earlier this year, here, outlines the other changes to the income tax/NIC treatment of termination payments which came into effect from April 2018.

The tax and NIC liability arising will not be reported and collected via the annual P11D(b) process, but will instead be collected via the PAYE Real Time Information (RTI) payroll process.

Preparing for the change

Employers and sporting testimonial committees should ensure that their payroll systems have been updated to allow them to report any Class 1A liabilities arising on termination payments or sporting testimonials, and that they can be reported using the RTI procedures.

HMRC will shortly be consulting with payroll software providers about what changes need to be made to the payroll software products to ensure the new Class 1A liabilities can be reported through RTI.

HMRC will also be providing detailed guidance to outline which type of payments will be liable to the new Class 1A NIC charge, how liabilities should be reported to HMRC and how they should be paid through RTI from 6 April 2020.

Next steps

For help and advice please get in touch with your usual BDO contact or one of our Employment Tax specialists.

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