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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Termination payments and benefits: redundancy: general

A common reason for the termination of an employment is redundancy. Redundancy has a special meaning, which is set out at EIM13800.

The Employment Rights Act 1996 provides that employees made redundant must receive a minimum level of compensation for that redundancy. This is called a statutory redundancy payment, for further details see EIM13760.

In addition, many employers provide an additional payment for the same reason. This is called a non-statutory redundancy payment, for further details see EIM13775 and subsequent guidance.

The significance of redundancy payments is that they are always charged to tax under Section 401 ITEPA 2003 (see EIM13000 onwards). The case of Mairs v Haughey (66TC273) held that such payments, even where provided for under contractual terms, are not earnings from employment within Section 62 ITEPA 2003(see EIM00515).

It is vital to identify redundancy payments properly because:

  • what people call redundancy payments may not be within the special definition of redundancy in EIM13800 and
  • redundancy usually involves other payments being made as well as those for the redundancy itself. For example payments in lieu of notice are often made at the same time (see EIM12975). Consider the whole package of payments and benefits under EIM12810 to make sure that no other charges are missed.