Employer National Insurance Contributions on Termination Payments: Changes From 6 April 2020 (UK)

Be aware that from 6 April 2020 it is going to get more expensive for employers to dismiss employees where they are making termination payments (excluding pay in lieu of notice) that exceed £30,000.

At the moment, the first £30,000 of a termination payment can generally be paid free of income tax and no national insurance contributions are due on the payment (whether or not it exceeds £30,000). This is about to change. From 6 April 2020, all termination payments that are chargeable to income tax will be subject to employer’s (Class 1A) national insurance contributions at 13.8%, to the extent they exceed £30,000. Termination payments will remain exempt from employee’s national insurance contributions.

The new rules will apply in respect of dismissals that take place on or after 6 April 2020. If you are intending to dismiss an employee who may be eligible for a significant termination payment (over £30,000), you may wish to ensure the termination date falls before 6 April 2020, as this could result in a significant national insurance contributions saving for the business.