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New Rules Set to Increase Termination Payments

Home / Blog / Employment / New Rules Set to Increase Termination Payments
March 6, 2020
by para
Employment

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
  • 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.
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