Tax News – Employer’s NI Due on Settlement Agreement

Whilst tax never makes the most interesting reading, it can be extremely useful to know how it is changing. Those of you who are experienced in negotiating settlement agreements will know that the first £30,000 is tax and NI free – provided there isn’t any PILON or PENP – and anything over that figure is subject to income tax deductions.

Last year the proposal to introduce employer NI contributions on termination payments was shelved. However, on 6^th April 2019, employers will now have to pay employer’s NI on termination payments over £30,000.

The reason behind the change is that many employers were constructing termination payments in such a way to avoid paying NICs on contractual payments such as notice. It is estimated the move will bring in an additional £400m for the treasury.

Practically, any employer considering terminating a senior employee that would likely receive more than £30k should do so before April as it will save them 13.8% in NICs on the part of the termination payment that exceeds £30,000. Something to bear in mind when offering settlement agreements post-April.