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HMRC internal manual

Employment Income Manual

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Termination payments and benefits: scope of Section 401 ITEPA 2003: benefits

Section 402 ITEPA 2003

What benefits are within Section 401 ITEPA 2003?

EIM13010 explained that Section 401 ITEPA 2003 applies to certain payments and benefits.

The definition of benefits for this purpose (Section 402 ITEPA 2003) is complex. The important point is that (apart from specific exclusions that are listed below) the scope is extremely wide. So it is unlikely that something provided as part of a termination or change package falls outside the scope of the Section. Remember that the definition includes things in the first two rows of the table below, meaning that its scope is in fact even wider than set out there.

If unsure whether something is a benefit for this purpose ask a series of questions:

### Question ### Notes
   
If what is provided was received for performing duties of the employment, would it be earnings (see EIM00515)?  

If so, it is a benefit for Section 402 purposes (unless listed below under “exclusions from benefits”).

Note: when answering this question, you must ignore any provision that would give a specific exception from earnings (Section 402(1)(b) ITEPA 2003). Most provisions to employees in these circumstances would be earnings (see EIM00515).
But they would not be if they are not money or money’s worth (see EIM00520). In that case, consider the next question.  
  If what is provided was received for performing duties of the employment, would it be within the benefits code (see EIM21006)?

If so, it is a benefit for Section 402 purposes (unless listed below under “exclusions from benefits”).

Note: when answering this question, you must ignore any provision that would give a specific exception from the benefits code (Section 402(1)(b) ITEPA 2003). Provisions in non-cash form are covered, such as use of a car after termination.
The scope of Section 401 ITEPA 2003 is not limited by the excluded employment provisions of the benefits code (see EIM20007). Section 401 applies to all employees.  
  Even if not within the two rows above, is what is provided a benefit within the ordinary meaning of that word?
If so, it is a benefit for Section 402 purposes (unless listed below under “exclusions from benefits”). Benefit includes provisions in the first two rows of this table, but is not limited to them.
  Is the provision only a right to receive something?
If so, it is not a benefit for Section 402 purposes (Section 402(4) ITEPA 2003). For example, a termination agreement may promise to pay £10,000 12 months after termination. The promise itself is not a benefit for this purpose. Only the payment is.  
  ### Exclusions from benefits ### Nature of exclusion
  Section 402(2) says that some things are not benefits even if they would be under the above definitions. These are listed in the opposite column.  
Note: these exclusions apply only for termination benefits. They do not apply where the provision is given for a change of duties or earnings (see EIM13000). 1. Benefits connected with a car, van or heavy goods vehicle. This exclusion ensures that where the use of such vehicles is a benefit for the purposes of Section 401 ITEPA 2003, there is a limitation on any further charge for things provided in connection with the vehicle. This limitation corresponds to the position during employment (see EIM23035 for cars. There are equivalent provisions for vans and heavy goods vehicles).
  1. Non-cash vouchers or credit tokens to obtain goods or services (or money to spend on goods or services) in connection with a car, van or heavy goods vehicle. This corresponds with similar provisions during employment (see EIM16100 for cars. There are equivalent provisions for vans and heavy goods vehicles).

  2. Mobile telephones (as for employees, see EIM21780).

  3. Computer equipment up to £500 per year (as for employees, see EIM21697).     
      Section 402(3) excludes one benefit from the definition where it is received in connection with a change of duties or earnings (see EIM13000) Removal benefits and expenses (as for employees, see EIM03101)

For a non-cash provision used or enjoyed before 6 April 1998, different rules apply (see SE13250).

See EIM13250 for the treatment of non-cash provisions.