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HMRC internal manual

Employment Income Manual

Termination payments and benefits: Section 401 ITEPA 2003: exceptions: payments and benefits in respect of employee liabilities and indemnity insurance

Sections 409 and 410 ITEPA 2003

EIM30501 explains that certain office holders and employees may face legal action in respect of their actions.

Where a payment or benefit within Section 401 ITEPA 2003 (see EIM13000) is received in respect of such liabilities, it is excepted from charge under that Section if the following conditions are met:

  • the benefit is in cash form and is given to meet the cost of a deductible amount (see below) or
  • the benefit is in non-cash form and represents a benefit equivalent to the cost of paying a deductible amount (see below).

A deductible amount is an amount that meets all of the following conditions:


  1. the individual pays the amount and
  2. a deduction for the amount would be allowed under Section 346 ITEPA 2003 if the individual still held the employment when the amount was paid. For this purpose, apply the guidance in EIM30501 as if this were the case and
  3. the amount is paid between (1) the day the employment terminated and (2) the 5 April falling more than 6 years after the date in (1). For example, if the date in (1) were 31 December 2003 then the date in (2) would be 5 April 2010.

If the individual has died and a payment or benefit is received by personal representatives, it is also excepted from Section 401 provided that it is:


  • paid by the personal representatives and
  • meets condition b above (on the assumptions that the individual is alive, in employment and had paid the sum) and
  • meets condition c above.

From 6 April 2017 the scope of the relief is expanded to include amounts paid by or on behalf of the individual by the employer, former employer or personal representatives.