NIM13207 - Class 1A NICs: Liability for Class 1A NICs: Class 1A NICs on termination awards: example 4 – cash and benefit-in-kind used for an agreed period of time
John has had his employment with BBBB terminated. He receives a payment of £65,000 when his employment is terminated. The payment is made up of the following elements:
- £10,000 in earnings and holiday pay
- £15,000 as compensation for not having to work a notice period (Post-employment notice pay (PENP)).
- £40,000 as compensation for loss of employment
John has been allowed use of a company car (taxable value £10,000) for one year, after which it must be returned to his ex-employer.
Class 1 NICs are due on £25,000 earnings (£10,000 earnings/holiday pay and £15,000 post-employment notice pay (PENP)).
The termination award consists of £40,000.
The exemption is applied to £40,000 with Class 1A NICs at 13.8% being due on that which exceeds £30,000. The hierarchy states that the exemption is applied to cash payments first.
£40,000 − £30,000 = £10,000 × 13.8%= £1,380.00
£1,380.00 is paid through RTI at the time it is paid.
Class 1A NICs are paid through the existing P11D(b) process on the value of the company car for the tax year, or years in which it is used. This may be one year or may span 2 tax years.