From the 6th of April 2020, it is going to get more expensive for employers to dismiss employees where they are making termination payments 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).
From 6 April 2020, all termination payments that are chargeable to income tax will now be subject to employer’s (Class 1A) national insurance contributions of 13.8%. 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, and the trigger is the date of the payment rather than the date of the dismissal.
Key considerations for businesses:
- You will need to consider the above change and the additional costs when terminating an individual’s employment.
- You may need to potentially offer lower settlement figures below the £30,000 termination payment threshold.
- 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 payment date falls before 6 April 2020, as this could result in a significant national insurance contributions saving for the business.
