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HMRC internal manual

Business Income Manual

Specific deductions: staffing costs: additional payments to redundant employees

S79, S79A Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), S79, S80 Corporation Tax Act 2009 (CTA 2009)

A statutory deduction is allowable for additional payments to redundant employees, up to a maximum of three times the amount of the statutory redundancy payment (or, where an approved contractual payment is made, three times the amount that would have been due if a statutory redundancy payment had been payable). In other words, if the statutory payment is £1,000, additional payments may be deducted up to a maximum of £3,000.

The conditions for the relief are:

  • there must first be entitlement under S76 ITTOIA 2005 (where the employer is subject to Income Tax) or S76 CTA 2009 (where the employer is a company),
  • the additional payment would be allowable as a deduction on general principles (see BIM47200) but for the permanent discontinuance of the trade or part of the trade.

A change in the persons carrying on the trade is treated as a permanent discontinuance of the trade for this purpose unless there is at least one person who carried on the trade both immediately before and after the change.

The deduction applies only to payments to a redundant employee which would satisfy the ‘wholly and exclusively’ test at BIM37000 onwards but for the discontinuance of the trade. Payments made as part of a bargain for a sale of shares (as in George Peters & Co Ltd v Smith [1963] 41TC264,see BIM42955) do not qualify for the relief.

Timing of deductions

Guidance on timing of deductions is at BIM47215.