However, if it is not possible to change this policy direction and we do have slight optimism that this could be possible given the new Chancellor’s commitment to simplifying the tax system, we believe that employers, together with their service providers, which include payroll bureaux, accountants and bookkeepers, and software developers should be provided with appropriately timely, accurate and detailed information by HMRC that will enable them to fulfil this latest unpalatable policy proposal.
Our consultation response can be read in full, within the My CIPP/Policy hub on our website.
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Termination Awards and Sporting Testimonials – real-time Class 1A NICs guidance 25 September 2019
HMRC’s Software Developers Support Team (SDST) has provided some guidance for software developers which employers and payroll practitioners may also find useful.
Change to ‘real-time Class 1A NICs’ Termination Awards’ are payments received in connection with the termination of a person’s employment.
‘Sporting Testimonials’ are used as shorthand for non-customary and non-contractual Sporting Testimonials. If an individual is contractually entitled to a Sporting Testimonial this would be treated as regular income and should be reported and taxed as such. Currently, tax is due on the amount of a Termination Award over the threshold of £30,000 (the threshold is £100,000 for Sporting Testimonials). For example, if an individual receives a Termination Award of £39,000, the employer would pay income tax on £9,000 as this is the amount above the threshold. From April 2020, employer Class 1A NICs will also be due on the amount above the threshold.
Class 1A NICs are already reported and collected on expenses and benefits as part of the annual P11D(b) process.
From April 2020 the Class 1A NICs on termination awards and sporting testimonials will be calculated, reported and paid as part of the existing PAYE cycle.
Guidance The guidance, produced for payroll software developers by HMRC’s Customer Strategy and Tax Design, contains background on these payments and includes a number of illustrative examples.
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Termination awards and sporting testimonials – real-time Class 1A NICs guidance – clarification 2 October 2019
In a previous news article published on 25 September 2019, a statement from HMRC was included that requires further clarification.
HMRC advised within guidance for software developers that ‘, if an individual receives a Termination Award of £39,000, the employer would pay income tax on £9,000 as this is the amount above the threshold’.
The above statement implies that the liability for tax on termination payments exceeding £30,000 is taken directly from the employer, and that they foot the bill. It is, in fact, the employee who pays the income tax on the £9,000 exceeding the tax-free termination payment threshold. It is at this point that the employer pays the tax amount across on behalf of
The Chartered Institute of Payroll Professionals
Payroll: need to know
cipp.org.uk
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