UK Pay: Class 1A NICS on Termination Payments- April 2020
(Doc ID 2643957.1)
Last updated on OCTOBER 15, 2020
Applies to:Oracle HRMS (UK)
Information in this document applies to any platform.
The UK government announced at Budget 2016 that it intended to reform the tax and NICs treatment of certain payments to align them. Currently certain forms of termination awards are exempt from employee and
employer NICs, and the first £30,000 is free from income tax. The changes were originally intended to come into force from April 2018 but, after 2 delays, they will come into effect from April 2020.
The National Insurance Contributions (Termination Awards and Sporting Testimonials) Act 2019 has been passed and introduced. The Act deals with 2 items:
- Aligning the National Insurance contributions treatment of termination awards made to employees with the income tax treatment of the same award
- Aligning the NICs treatment of income from sporting testimonials with the income tax treatment
The changes to the NICs treatment of termination awards place an employers’ Class 1A NICs liability on the amount of a termination award that exceeds £30,000, mirroring the income tax treatment. This Class 1A
liability does not affect individuals as it is paid by the employer only. This only applies to payments which are not already considered as earnings for Class 1 NICs.
This Note details the solution provided by Oracle and included in TYE 2019/20 patch. Details on this can be found also in Note: Legislative Changes for the End of Tax Year 2019/20, the Start of Tax Year 2020/21, and the Real Time Information Changes Effective 06 April 2020 (Doc ID 2593075.1)
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