Original date posted: 08/11/2018
Please note: The Scheme Administrator at the time of posting was MyCSP
Audience
Summary
Following the review of the National Insurance Contributions (NICs) Bill, the Government has confirmed that it still intends to legislate for reforms to the NICs treatment of termination payments. This has previously been stated to come into force on 06 April 2019.
Employers will take over responsibility for making cash payments from 01 January 2019 as previously stated.
This EPN provides further detail about the process changes required to enable employers to make cash exit payments.
Actions
You will need to review the processes in this EPN and ensure your payroll (or payroll provider) will be able to make cash exit payments and deduct income tax from 01 January 2019. From 06 April 2020 they will also be required to deduct employer National Insurance payments on cash exit payments (subject to planned HM Treasury legislation).
You should review your current accounting arrangements, and consider any changes that may be required.
Timing
Detail
EPN 552 and EPN 523 detailed that employers would take over making cash exit payments from 01 January 2019. The purpose of this EPN is to provide guidance for employers taking over responsibility for making cash exit payments. Guidance on how to deliver these changes can be found below. Please be aware that the requirement to deduct employer National Insurance when cash exit payments are in excess of £30,000.00, is not expected to apply until 06 April 2020 (subject to planned HM Treasury legislation). More information can be found at paragraph 3.12 on page 42 of Budget 2018.
Compensation Payments - post 01 January 2019
For all exit schemes (excluding efficiency exits), the timescale for returning Compensation Declaration Forms (CDF) will be agreed with employers during the initial commissioning phase of work and documented within the F1 form. The date for returning CDF forms will be a joint agreement between employers and the Scheme Administrator. This will ensure employers have enough time to process payments. The decision will take into account the size of the individual exit schemes and the proposed timings of the exits.
Employers must not pay employees their compensation prior to their Last Day Of Service (LDOS). Some payrolls may only be able to make payments on a single day each month. Where this applies, careful consideration about the dates and communication with employees about their exit payments should be undertaken before finalising LDOS. In order to achieve this, it is recommended that employers are fully aware of any timing constraints laid down by their payroll (or payroll providers).
The amended process is detailed in the attached employers guide ‘What to expect when you set up an exit scheme’.
Efficiency departures are separate from redundancy exit schemes, and will continue to use the Request for Services process. The Scheme Administrator will provide employers with final compensation values within ten working days of receipt of a fully completed Personal Details Form (PDF) from the employee, to enable employers to arrange for payment of compensation via payroll.
Employers are reminded that they are responsible for making all relevant tax HM Revenue & Customs (HMRC) income tax deductions and payments, including National Insurance contribution deductions once legislation has been laid down.
Transitional Arrangements – pre 01 January 2019
If CDF forms are received before the 12 December 2018 and the LDOS falls prior to the 01 January 2019, the Scheme Administrator will process the Compensation Lump Sum payment into the employees’ bank account and bill the appropriate employer. For employees with a LDOS after 31 December 2018, employers will be instructed by the Scheme Administrator to process the Compensation Lump Sum payment into the employees’ bank account.
If CDF forms are received after the 12 December 2018, the Scheme Administrator will instruct the appropriate employer to pay the Compensation Lump Sum in all cases.
For in train exit schemes, if employers wish to discuss CDF return and processing timescales, please contact the Scheme Commissioner
Next steps
You will need to ensure you are prepared for your payroll (or payroll providers) to start making cash exit payments from 01 January 2019, including deducting and paying HMRC income tax.
For existing exits schemes, you will need to ensure that you submit CDF forms to the Scheme Administrator by 12 December 2018 for employees with a LDOS prior to 31 December 2018 if you wish for the Scheme Administrator to process the Compensation Lump Sum payment into the employees’ bank account.
For existing exits schemes, you will need to ensure you are prepared for your payroll (or payroll providers) to start making cash exit payments (including deducting and paying HMRC income tax) for CDF forms submitted to the Scheme Administrator after 12 December 2018.
From 06 April 2020, your payroll (or payroll providers) will need to deduct employer National Insurance due on cash exit payments and pay them to HMRC (subject to planned HM Treasury legislation).
In order to commission any new exit schemes, please ensure that the attached updated F1 form is used.
If you require support or have further questions, please contact the Scheme Administrator
