Budget 2020 – Class 1A liabilities on Termination Awards

A new liability to Class 1A NICs comes into effect on 6 April 2020 on termination awards over £30,000 and payments from sporting testimonials above £100,000.

The new Class 1A NICs liability applies to non-contractual taxable termination awards over a £30,000 threshold, that have not already incurred a payroll Class 1 NICs liability as earnings.

Unlike the Class 1A NICs liability payable on benefits in kind this new liability will not be payable and reported via the annual P11D(b) payment/reporting process. Instead, from 6 April 2020 onwards, Class 1A liabilities arising on taxable termination awards which comprise of cash and/or cash equivalent payments, will be paid and reported through the PAYE/Real Time Information (RTI) process.

This new Class 1A liability will not apply to any termination awards paid after 5 April 2020 in respect of employment which was terminated before 6 April 2020.

Before 6 April 2020, employers should ensure that their payroll software has been updated to enable them to pay and report the new Class 1A NICs liabilities, arising on termination awards, through RTI.

If you wish to discuss anything, please contact one of our Chartered Tax Advisers.

Our Budget Summary provides an overview of the key announcements arising from the Chancellor’s speech. However, it also looks beyond the headlines and offers details on the less-publicised changes that are most likely to have an impact upon your business and your personal finances.