Traditionally National Insurance Contributions (NICs) were not charged on certain termination payments and sporting testimonials if this income was not contractual and not customary. However for payments made on or after 6 April 2020 Class 1A NICs, payable at 13.8% by the employer only, are due on these amounts.
The National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill 2017-19 was agreed by the House of Commons Public Bill committee on 14 May 2019. The bill introduces a new Class 1A NICs charge to:
The changes mean the NIC treatment of the termination payments and sporting testimonials are more closely aligned to the income tax treatment which was updated in 2017 and 2018. Additionally to prevent double taxation there is an exemption for charge for any amounts already subject to Class 1 NICs as earnings.
Specifically for sporting testimonials going forward, it is worth mentioning that if the employer is different to the controller of the testimonial, then the controller of the testimonial is liable for the Class 1A NICs charge. This new NICs charge is extended to any additional payment made by the controller to discharge any income tax liability on that recipient.
As a positive for employers, the minister also on 14 May 2019 confirmed that the government has no plans to lower the £30,000 termination payment threshold in future.
In terms of next steps, the bill will now move to the Commons Report stage and will eventually amend the Social Security Contributions and Benefits Act 1992. HMRC have published their guidance on this area which can be found here.
If you would like any assistance in this area, please do not hesitate to contact Simon Herbert.