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HMRC internal manual

Employment Income Manual

Employment income: employment protection legislation: Employment Rights Act 1996; protective awards

The Employment Rights Act 1996 (‘ERA’) sets out many of the statutory rights which an employee has. It gives Employment Tribunals power to order employers who infringe those rights to make payments of compensation. ERA only applies in Great Britain but similar legislation applies in Northern Ireland.

For compensation for unfair and wrongful dismissal, see EIM12960.

The following payments that a tribunal may order an employer to make count as earnings under section 62 ITEPA 2003 (see EIM00515):

  • guarantee payments under sections 28 and 34(3) ERA
  • payments to an employee suspended from work on medical grounds under sections 64 and 70(3) ERA
  • maternity suspension payments under sections 68 and 70(3) ERA
  • payments under sections 51(3)(b) or 63(4) ERA for infringing the employee’s rights to time off for public duties under section 50 or Trade Union duties or activities under sections 61 and 62 respectively
  • payments under the Sex Discrimination Acts, the Equal Pay Act 1970 (see EIM02530), the Wages Act 1986, the Trade Union and Labour Relations (Consolidation) Act 1992 and the National Minimum Wage Act 1998 for wrongfully depressing the employee’s remuneration in the employment - see EIM42290 for guidance on when arrears of pay are assessable to income tax


A tribunal may also make an order for a payment of remuneration (a protective award) under the Trade Union and Labour Relations (Consolidation) Act 1992. The tax consequences of this award will depend on:

  • whether the particular employee is still employed, or
  • whether the employee has had their employment terminated before the award was paid and whether the award was paid in the same tax year as the termination or in a later tax year


The date of payment of the protective award for tax purposes is the date the employment tribunal confirms a protective award is due.

The protective award will never constitute earnings (that is sections 9 and 62 ITEPA 2003) as it is not “from an employment”.

The protective award is paid whilst the employee is still in employment or the employment has been terminated but the protective award is paid in the *same *tax year as the termination of their employment

The protective award will be a cash benefit in kind provided by reason of the employment – section 201 ITEPA 2003.

The protective award is paid after the employment has terminated and in a later tax year

If the award and dismissal fall in the same tax year then the award will always be a cash benefit in kind provided by reason of the employment.

If the employee is dismissed in a tax year prior to the award being made, the protective award will be a termination payment (section 401 ITEPA 2003). Whether the award is taxable will depend on the employee’s individual circumstances and what other payments they received when they were dismissed. All these payments (including any statutory redundancy payment and protective award) need to be aggregated; if the amount is greater than £30,000 then tax will be due.

To note: the tax outcome is the same regardless of whether a protective award is paid by the employer or the Redundancy Payments Service (where the employer is or has become insolvent).

On making any of the above payments, the PAYE Regulations apply.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)