MY CIPP
The CIPP’s Advisory Service team provides answers to popular questions
Treatment of termination payments above £30,000 Q: Does a termination payment over £30,000 attract both tax and employee National Insurance (NI) on the amount over £30,000? A: If this payment falls under Section 403 of the Income Tax (Earnings and Pensions) Act 2003, the first £30,000 isn’t subject to tax and NI. Anything above that £30,000 will be subject to income tax. The amount above the £30,000 is subject to class 1A employer contributions and must be reported and paid over in real time. So, the amount above the £30,000 doesn’t attract primary and secondary NICs, but does impact class 1A NICs, which must be paid by the employer in real time.
to each company. You would need to consider the type of worker and ensure you’re mindful of any national minimum wage implications. How proration is handled is usually written into contracts of employment or in the conditions of service. Two things to consider are: ● whatever method is used, it should be fair and consistent across the organisation ● when there’s nothing in the contract, terms of conditions or employment handbook, the contract is deemed silent on the subject, and where a contract is silent, the accrual method should be 1/365th for each calendar day, in accordance with the Apportionment Act 1870. Apprentice NI category letters Q: I’ve got an apprentice who is on NI category letter H, and they have turned 25 during the year. Do I move them to NI category letter A from the pay period following the one in which they turned 25, or do they remain on category letter H for the duration of the tax year / apprenticeship? A: This employee should be moved to NI category letter A from the contractual pay date on or after their 25th birthday. So, for instance, if a monthly payroll has a pay date of the 20 February and this employee’s 25th birthday is on 19 February, then category letter A applies from February’s pay date onwards.
By contrast, if the birthday falls on the 21 February, then category letter A applies from March’s pay date onwards.
Pensions and unpaid parental leave
Are there rules surrounding pension contributions when employees take unpaid parental leave?
Q: When an employee takes unpaid parental leave, are there any rules or requirements around whether pension contributions should continue? A: If the employee isn’t being paid, the employer must still make contributions for the first 26 weeks of an employee’s parental leave. After this, there would be no pension contributions due unless your pension scheme rules are more generous. Please see the link here to HM Revenue and Customs’ (HMRC’s) guidance, specifically the section on maternity and other parental leave: https://ow.ly/3Na850R6CuQ: “Maternity and other parental leave
The correct proration of salary
Are there specific rules around how to prorate salaries when employees are on unpaid leave?
Q: How do you prorate salary when an employee is on unpaid leave? A: The proration of salaries is individual
| Professional in Payroll, Pensions and Reward | May 2024 | Issue 100 8
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