19 April 2018 
Michael Edwards,
Ann Wilson-Clark, H&FE Sector Compliance Manager at HMRC, has asked us to remind members of the new rules about the tax and NIC treatment of termination payments effective 6 April 2018. From that date, employers must calculate the part of a termination payment that represents Post-Employment Notice Pay ("PENP").This is intended to reflect earnings that the individual would have received, had their notice period been worked in full.
Employers are required to operate PAYE on the PENP, and account for both employee’s and employer’s NIC. The Apprenticeship Levy will also be due where the employer is within the scope of that charge. The part of a termination payment that is not PENP will be subject to income tax if, and to the extent that, it exceeds £30,000. Additionally, from 6 April 2019, Class 1A (employer’s only) NIC will apply to the non-PENP element of a termination payment to the extent that it exceeds £30,000.
A link to the relevant pages of the Employment Income Manual, where there is detailed guidance on how to calculate PENP, is provided here. Members may also find the February 2108 Employers Bulletin of interest - there is a termination payments article at page 5 (updated in March) that can be found here.
