Do Employees pay National Insurance on Severance Payments?

MallardandClaret

Hi. I am receiving a voluntary severance payment on the termination of my employment. The severance payment has £30k tax free and anything over that is taxable. My question is about whether that amount of £30k requires employee National Insurance contributions to be paid. The HMRC website says Employer Class 1A NIC must be paid on the amount over £30k but my question is, does the employee also have to pay NI as well on this part? The severance payment is NOT made up of Payment in-lieu of Notice (PILON) or restrictive covenant. It’s a severance payment that “includes any entitlement to statutory redundancy pay plus additional element. The payment will be made around 3 weeks after my employment finishes. Thanks very much for any advice.

MallardandClaret

Sorry - I mean the amount OVER the £30k - is employee NI payable on that element? Thanks 

Veteransaver

Yes it is, though as it's paid in one lump it shouldn't be a lot, I think it can be paid as a "week 1" so only the bit between £242 primary threshold and £967 (upper earnings limit) is charged at 12%. the rest is at 2%.

MallardandClaret

Thanks Veteransaver! So say there is £10,000 over the £30k. What would be the NI on that? And does my employer need to specify that it is “week1”?
thanks 

MallardandClaret

I suppose it would be monthly as I normally get paid monthly …. So I’m assuming it would be the lower threshold of £1048/month would not pay NI but 12% on everything above that to the upper threshold of £4,190, then 2% on everything above £4,190?

so on £10k over, assuming no other NI was paid from wages or PILON payments, then the £10k would be subject to 

Up to £1048 (£0 NI)
between £1048 and £4,190= 12% of £3,142=£377.04
Between £4,190 and £10,000=2% of £5,810=£116.20

total NI on the £10k above the £30k severance would be £493.24 ????

is that the correct process for calculating the NI due?

thanks very much.

molerat

Looks about right, different software packages can calculate the NI slightly differently but all within a few pence.

Veteransaver

MallardandClaret said:

Thanks Veteransaver! So say there is £10,000 over the £30k. What would be the NI on that? And does my employer need to specify that it is “week1”?
thanks 

Best to speak to your HR department, I think they can do it on a week 1 basis so that would save even more. I was in a similar situation many years ago and it was taxed at week 1 basis after I'd effectively left the company.
If it's a redundancy I presume you are entering into a compromise agreement so will have a lawyer advising you? No harm in seeing if you can get that into the compromise agreement.
Also does your firm pay annual bonuses? If so it's worth putting that in it as well, Eg a pro-rated performance bonus for the part of the year you did work. It may well be nothing, but often firms do actually have a bonus pool that they can allocate to you, and if it's a smallish amount (for them) they pay it to avoid any claims against them for reneging on the compromise agreement.

chrisbur

Details of NI to be deducted from a payment made after the employee has left is in the CWG2 here....

https://www.gov.uk/government/publications/cwg2-further-guide-to-paye-and-national-insurance-contributions/2022-to-2023-employer-further-guide-to-paye-and-national-insurance-contributions

NI deduction will depend on whether the payment is regular irregular or a mixture....
See  Section 1.4 Standard payments made when or after an employee leaves

Always assuming that the payroll dept. is acquainted with CWG2