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HMRC internal manual

Employment Income Manual

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Termination payments and benefits: Section 401 ITEPA 2003: threshold, exceptions, reliefs and reduction

Sections 402 and 405 to 414 ITEPA 2003

For the purposes of Section 401 ITEPA 2003 there is a threshold (currently £30,000) below which payments and benefits do not count as employment income (see EIM00510).

There are also exceptions, reliefs and a reduction for payments and benefits chargeable under that Section as well as some payments which are defined as not being “benefits”. These are set out in the table below.

The reduction relates to foreign service (see EIM13700) and must be claimed within four years after the end of the year of assessment to which it relates (for claims made before 2 April 2010 the limit is five years from 31 January following the year of assessment). All the exceptions are given without a claim if the conditions are satisfied.

It is important to make sure that all Section 401 ITEPA 2003 charges in respect of an employment are added together before the threshold is applied. For example:

  • a charge on the provision of assets (see EIM13020) must be added to any cash payment for that termination before the threshold is applied
  • payments and benefits must be aggregated in some circumstances (seeEIM13530).
### Threshold, exception, relief or reduction etc ### Notes ### Guidance
     
£30,000 General threshold for charges within Section 401 ITEPA 2003. EIM13505 to EIM13550
Death Exception for payment or benefit given when employment is terminated by employee’s death EIM13600
Injury and disability Exception where payment or benefit given on account of physical injury to, or disability of, an employee EIM13610 to EIM13650
Lump sum from retirement benefit scheme Does not exempt lump sum from a non-approved scheme Does not exempt a lump sum from a non-approved or, from 6 April 2006, an employer-financed scheme (see EIM15000 onwards) EIM13660
Lump sum from overseas retirement benefit scheme Extra-Statutory Concession A10 EIM13670
Indemnity insurance   EIM13675
Benefit from an overseas territory   EIM13710
H M Forces payment   EIM13720
Double taxation   EIM13730
Contribution to approved retirement benefits scheme Includes a registered scheme from 6 April 2006 EIM13735
Payment to meet legal costs connected with termination Extra-Statutory Concession A81 EIM13740
Outplacement counselling   EIM13745
Additional lump sum compensation payment Payable to civil servants and ex-civil servants with retained rights from 1987 EIM13747
Foreign service A full exception: if the conditions are not met, a foreign service reduction may still be due, see next entry below EIM13680 to EIM13690
Foreign service reduction Reduces the amount of the payment that is chargeable EIM13700
Benefits connected with:    
  • taxable cars and vans and HGVs
  • mobile phones
  • computer equipment
Note: for each of these benefits, assume that it is received for duties of the employment when applying the guidance Exempts these benefits when given as part of a termination package. They are benefits that would be exempt if given during employment. EIM21701 

EIM21781 

EIM22710 

EIM22992