The government announced in 2016 that it intended to align the income tax and NICs treatment of termination payments. It was originally expected that the reform would take effect in 2018, but this was delayed until 2020.
The legislation that will implement the reform, the National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill has now been introduced to Parliament and HMRC has published further guidance on the measure. At the moment, the first £30,000 of a termination payment is tax free and neither employee nor employer NICs are chargeable on any part of a termination payment. From 6 April 2020, employer NICs at 13.8% will be payable on any part of a termination payment that is liable to income tax. However, termination payments will remain exempt from employee NICs.
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