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HMRC internal manual

Employment Income Manual

Termination payments and benefits: payments made under the Employment Rights Act 1996: wrongful dismissal

Complaints of wrongful dismissal resulting from the employer’s termination of the employment without adequate notice are common. Wrongful dismissal involves a breach of contractual terms rather than an infringement of statutory rules. But Employment Tribunals still deal with these because employees have statutory rights to notice under Sections 86 and 87 Employment Rights Act 1996 (ERA) quite apart from any such rights contained in a contract of employment.

If the Tribunal finds that the employer has wrongfully dismissed the employee without notice, it may require the employer to make a payment instead under Sections 88 and 89 ERA. Such a payment is to be taxed only under Section 401 ITEPA 2003 in the same way as damages that an employer pays for breach of an employee’s contractual notice rights (see EIM12978).

As regards other payments made under the Employment Rights Act 1996, a list of those assessable under Section 62 ITEPA 2003 will be found at EIM02550.

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