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HMRC internal manual

Employment Income Manual

Termination payments and benefits: aection 401 ITEPA 2003: scope of the charge: details

Section 403(1) ITEPA 2003

With effect from 6 April 2018, an element of all payments received in connection with the termination of a person’s office, or employment are chargeable to income tax as general earnings. EIM13874 defines the term ‘relevant termination awards’ and explains that relevant termination awards are split into 2 elements:

  • post-employment notice pay (PENP)
  • termination awards subject to section 403 ITEPA 2003

Payments or benefits that are termination awards subject to section 403 ITEPA 2003 (see EIM13874), or are within the scope of section 401(1)(b) or (c) ITEPA 2003 (see EIM13010) are chargeable to income tax on the person who holds or has held the employment in respect of which the payment is made:

  • even if paid or enjoyed long after the termination (see example EIM13912)
  • whether provided by the employer or by someone else (see example EIM13911)
  • even if not paid under a legal obligation (see example EIM13914)
  • if not in money (see EIM13250)
  • if received by a non-resident or from a foreign source (see EIM13050)
  • whether received by the employee or by the spouse, (from 5 December 2005) civil partner, blood relative, dependant or personal representatives of the employee (see example EIM13916)
  • where provided on behalf of, or to the order of, the employee (see example EIM13918). However, some of these payments are excluded from the charge, see EIM13120 for details

The one exception is where the employee has died since the event that gave rise to the payment, when the assessment is on the personal representatives of the ex-employee.