Policy background
Termination Awards
- The Government announced at Budget 2016 that it would be reforming the tax and NICs treatment of termination awards. 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 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. The new Class 1A liability does not affect individuals as it is paid by the employer.
- The Act introduces a new Class 1A NICs liability which will be payable on payments made on termination of employment which are in excess of £30,000 and which are not already charged to Class 1 NICs as earnings.
- It amends the existing section 10 of the Social Security Contributions and Benefits Act 1992 (SSCBA 1992) and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (SSCB(NI)A 1992) by providing for the new Class 1A NICs liability on termination awards, whilst keeping the existing provisions for Class 1A contributions payable on benefits in kind provided to employees, and defining which subsection applies.
