Currently, NICs are generally payable in respect of contractual termination payments, whereas non-contractual termination payments are generally exempt from both employee and employer NICs.
In July 2015, HMRC and HM Treasury jointly launched a consultation with the aim of simplifying the tax and national insurance treatment of employee termination payments in order to provide greater certainty for employers and employees alike. The consultation closed in October 2015.
The government has announced today in the Budget that, from April 2018, employer NICs (currently 13.8%) will now be payable on non-contractual termination payments over £30,000, thus aligning the income tax and NICs treatment of such payments. The government has also mentioned that it intends to tighten the scope of the £30,000 exemption.
Details of these proposals are yet to be released.
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