HMRC has confirmed that secondary legislation will be laid to impose National Insurance contributions (NIC) on the Post-Employment Notice Pay (PENP) element of termination payments from 6 April 2018.
From 6 April 2018, employers must calculate the part of a termination payment that represents PENP. This is intended to reflect earnings that the individual would have received, had their notice period been worked in full.
Employers will be required to operate PAYE on the PENP, and account for both employee’s and employer’s NIC. The Apprenticeship Levy will also be due where the employer is within the scope of that charge. The part of a termination payment that is not PENP will be subject to income tax if, and to the extent that, it exceeds £30,000.
Foreign Service Relief on termination payments will also be withdrawn from 6 April 2018 for most UK resident employees.
From 6 April 2019, Class 1A (employer’s only) NIC will also apply to the non-PENP element of a termination payment to the extent that it exceeds £30,000.
The legislation to change the income tax treatment of termination payments was introduced by Finance (No 2) Act 2017.HMRC has confirmed to KPMG that secondary legislation will be introduced shortly to impose the relevant Class 1 NIC charges on PENP.
A NIC Bill which, when enacted, will impose a Class 1A NIC charge on the non-PNEP part of termination payments from 6 April 2019, is expected to be published later in 2018, together with accompanying secondary legislation.
If you have any queries, please do not hesitate to get in touch with your normal contact or e-mail us.