Payroll insight
£30,000 threshold alignment For many years the rules regarding termination payments have seen a mismatch between the tax and NICs treatment in respect of the £30,000 tax threshold that can apply to certain termination awards. A payment that is genuinely compensatory in nature paid on termination does not currently attract any NICs charge even if it exceeds £30,000, whereas it will be subject to a tax charge The employer decides to dismiss Alex without notice and the parties agree on a termination payment of £24,000, which is the equivalent of six months’ salary. Note that though the termination payment may not specifically refer to Example Alex has a monthly basic salary of £4,000, a three-month notice period and no PILON clause in the contract of employment (or elsewhere).
if it exceeds that threshold. Though the new PILON rules will mean that certain payments will be brought into charge, the principle remains that the £30,000 threshold, for now, applies only for tax purposes. An important change will occur next year which will mean that, alongside income tax, employer NICs will be chargeable on any termination payments made in excess of the £30,000 a PILON, it would still be regarded as a ‘relevant termination award’ and the PENP calculation rules applied. The settlement does not include any redundancy pay element, whether statutory or otherwise. Alex’s PENP is £12,000 (i.e. one month’s pay of £4,000 × three months’ notice ÷ one month pay period). For the purposes of this calculation we have used whole months with one month incorporating thirty days, but
exemption after 6 April 2019. This change was initially intended to come into effect from 6 April 2018 but has been postponed. The additional charge will be a class 1A rather than a class 1 liability. Termination payments that qualify for exemption under section 401 will remain exempt from class 1 NICs. n The rules regarding the tax/NICs treatment of terminations payments are complex and great care should be exercised, and advice taken where appropriate, to ensure that they are correctly applied. (and thus fully subject to tax/NICs). The remaining £12,000 remains eligible for exemption within section 401 of the Income Tax (Earnings & Pensions) Act 2003 and may be paid free of tax/NICs. As there is no contractual PILON in this case there is no reduction required using ‘T’ in the formula. please note that the actual number of days must be used for the calculation. This amount will be treated as earnings
...great care should be exercised, and advice taken where appropriate...
Payroll for Scoish employees
Half day
In April 2018 following devolution, Scotland will apply its own PAYE tax thresholds. Our new Payroll for Scoish employees course will prepare payroll staff for these changes. Contextualising these changes using case studies and working examples, this half day course will focus on the following:
● The new PAYE thresholds ● Applying NICs ● Scottish Arrestment orders ● Childcare vouchers ● PAYE settlement agreements (PSA) ● Pensions (relief at source tax arrangements) ● Apprenticeship Levy
To book your place on this essential course, visit cipptraining.org.uk , email info@cipp.org.uk or call 0121 712 1000 for more information.
cipp.org.uk CIPP_UK cip .org.uk @CI P_UK
17
| Professional in Payroll, Pensions and Reward |
Issue 40 | May 2018
Made with FlippingBook - Online magazine maker