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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 1A National Insurance contributions: Liability for Class 1A NICs: Benefits provided on termination of employment

IntroductionFor a Class 1A NICs liability to arise an earner must be chargeable to income tax under ITEPA 2003 on an amount of general earnings received by him (before 6 April 2003 – an earner must be chargeable to income tax under Schedule E on an amount which, for the purposes of the Income Tax Acts is, or falls to be treated as, an emolument received by him). The relevant legislation is section 10(1) of the SSCBA 1992 – see

NIM13070

Redundancy payments – GeneralSection 309 ITEPA 2003 (before 6 April 2003 – sections 579(1) and 580(3) ICTA 1988) places statutory redundancy payments, which are due to employees under the Employment Rights Act 1996, solely within Chapter 3 of Part 6 of ITEPA 2003 (sections 401 to 416 – before 6 April 2003 section 148 of ICTA 1988) see EIM13000 (before 6 April 2003 - SE13000). They are not taxable as general earnings.

Redundancy payments – Payments on or after 6 April 2003Section 403 of ITEPA 2003 describes an amount chargeable to tax under that section as employment income. As payments and benefits charged to tax under section 403 are neither general earnings, or treated as such, a Class 1A NICs liability cannot arise. Section 10(1)(a) of the SSCBA 1992 is not satisfied.

Statutory redundancy payments – Payments before 6 April 2003

Section 148 ICTA 1988 does not treat or deem payments within it to be emoluments. It describes an amount chargeable to tax under that section as ’income chargeable to Schedule E’. As payments and benefits charged to tax under section 148 are neither emoluments, or treated as such, a Class 1A NICs liability cannot arise. Section 10(1)(a) of the SSCBA 1992 is not satisfied.

Non-statutory redundancy paymentsNon-statutory redundancy payments, may arise where employers pay more than the statutory limits but for the same reason as statutory payments under the Employment Rights Act 1996. Those payments are also chargeable to tax solely by section 403 of ITEPA 2003 (before 6 April 2003 section 148 of ICTA 1988).

Applying the £30,000 exemption

Payments within section 403 of ITEPA 2003 (before 6 April 2003 section 148 of ICTA 1988) qualify for the £30,000 exemption and tax will only be charged on amounts in excess of the exemption. Regardless of the tax charge, no Class 1A NICs liability can arise from payments and benefits charged to tax under section 403 of ITEPA 2003 (before 6 April 2003 section 148 of ICTA 1988).

Payments other than for redundancy

Chapter 3 of Part 6 of ITEPA 2003 (sections 401 to 416 – before 6 April 2003 section 148 of ICTA 1988) includes only payments and benefits that are clearly compensation for loss of employment by reason of redundancy – as defined in the Employment Rights Act. Not included are other payments and benefits that may be provided at the same time but for different reasons, such as certain types of payments in lieu of notice.

Where other payments or benefits are provided on termination of employment, for Class 1A NICs liability to arise the conditions described at NIM13020 must apply. The payments/benefits must be, or must be treated as, general earnings (before 6 April 2003 must be, or must be treated as emoluments) and must not attract a Class 1 NICs liability.