If you need to pay redundancy or termination payments, you need to set up the pay elements correctly. In both cases, these payments are normally free of tax and national insurance (NI) up to the value of £30,000. 

There are certain criteria to meet to require a termination payment.

For further information about this, go to GOV.UK, or contact the HMRC Employers Helpline on 0300 200 3200. 

Before you start

Check whether the termination payment is subject to pension or attachment of earnings order deductions. For more information, go to GOV.UK or contact your pension provider.

To process this in Sage 50 Payroll, you can create a post tax and post NI payment up to value of £30,000. If the value of the payment is above £30,000, you also need to set up a termination payment subject to Class 1A national insurance.

 NOTE: You can't process a net payment alongside a termination payment.  

Process payments up to the value of £30,000

Set up a post tax and post NI payment

1. Click Company then Pay Elements then click New.
2. Enter the required description then clear the PAYE and National Insurance check boxes.
3. Clear or select any relevant check boxes as appropriate.
4. Click OK then click Close.

Assign the payment to an employee

1. Double-click the required employee.
2. Click the Employment tab then click Pay Elements.
3. On a new line beneath the last payment on the list, click the finder button.
4. From the drop-down list choose the required description, click OK.
5. Enter the relevant hours and rate then click Save.
6. Click Save then click Close. 

If required, you can assign the payment to several employees at the same time. For help with doing this, visit the Global Changes: payments article.

Process payments more than £30,000

Set up a post tax and post NI payment for the £30,000 that's not subject to tax and NI

1. Click Company then Pay Elements then click New.
2. Enter the required description then clear the PAYE and National Insurance check boxes.
3. Clear or select any relevant check boxes as appropriate.
4. Click OK then click Close.

Set up a termination payment subject to Class 1A national insurance for the amount above £30,000

1. Click Company then click Pay Elements.
2. Click New then enter the required description.
3. Select the Termination Payment Class 1A check box.
   

   NOTE: This will automatically tick the PAYE and untick any other boxes for the payment to be subject to.

4. Click OK then click Close.

Assign the payments to an employee

1. Double-click the required employee.
2. Click the Employment tab then click Pay Elements.
3. On a new line beneath the last payment on the list, click the finder button.
4. From the drop-down list choose the required description, click OK.
5. Enter the relevant hours and rate then click Save.
6. Repeat steps 3 to 5 for the next payment.
7. Click Save then click Close. 

If required, you can assign the payment to several employees at the same time. For help with doing this, visit the Global Changes: payments article.

NOTE: Payments over £30,000 aren’t subject to Employee's National Insurance, only Employer's National Insurance. You can see this when you assign the pay element to the employee, by clicking the Summary tab then the Employers button. 

Next steps

After you process the termination payment, mark the employee as a lever. For help with doing this, visit the make an employee a leaver and produce their P45 article.

If you have any Class 1A NI due on termination payments, this appears against point 19 - Termination Payments Class 1A NICs on your P32.