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HMRC internal manual

Employment Income Manual

Termination payments and benefits: interaction with benefits received during employment

Sections 401 and 63 ITEPA 2003 It is common for benefits provided to employees during employment to continue beyond the date of termination, usually by a specific agreement made at the time. For example, an employee provided with private use of a car may, as part of the termination package, continue to use it for a specified period following the termination.

The resulting interactions between the benefits code (see EIM21001) and Section 401 ITEPA 2003 can be complex, but as a matter of practice benefits that straddle the termination should be apportioned on a time basis, those falling after termination being taxed under Section 401 ITEPA 2003 and calculated following EIM13270. There are examples of this at EIM13905 and EIM13906.

For living accommodation, calculate the charge following EIM13330 and then apportion on a time basis. For example, if in the year of termination the property is provided for 3 months in the tax year following termination, 3/12 of the charge calculated under EIM13330 onwards should be included in Section 401 ITEPA 2003.

Note that Section 401 ITEPA 2003 applies to all employees. An employee may have not been charged on a particular benefit during employment under the benefits code if the employment was an excluded employment (see EIM20007). The excluded employment concept has no relevance for Section 401 ITEPA 2003 and so a charge on that benefit may arise for the first time after termination of employment.