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HMRC internal manual

Employment Income Manual

Termination payments and benefits: non-statutory redundancy payments: general

Many employers make redundancy payments under non-statutory schemes and arrangements. They include:

  • schemes authorised by the Secretary of State for Employment under Section 157 Employment Rights Act 1996 - these schemes are a substitute for the statutory payments under the Employment Rights Act 1996 (see EIM13760) and are at least as high as them
  • general schemes providing payments to employees who are not covered by Employment Rights Act 1996 entitlements (for example, Civil Servants and National Health Service employees)
  • schemes providing payments in addition to statutory payments
  • general schemes not tied to any specific redundancy situation (for example, one expressed in general terms embracing redundancies as they occur)
  • schemes to meet specific redundancy situations (for example, the imminent closure of a particular factory)

EIM13760 explains that statutory redundancy payments fall within section 401 ITEPA 2003. Payments made as compensation for loss of employment through redundancy from these non- statutory schemes also fall only into section 401 ITEPA 2003 following the decision in Mairs v Haughey (66TC273), see EIM13750.

EIM13874 explains that with effect from 6 April 2018, some termination payments and benefits are chargeable to income tax as general earnings and do not benefit from the £30,000 threshold available in section 403 ITEPA 2003.

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

Statutory redundancy payments and contractually approved payments (see EIM13760) are not within the definition of ‘relevant termination awards’ (see EIM13874). These payments are always chargeable to income tax as specific employment income and benefit from the £30,000 threshold available in section 403 ITEPA 2003.

Statement of Practice 1/1994:

  • explains HMRC’s practice concerning non-statutory redundancy payments, see EIM13785
  • invites employers to submit proposed non-statutory schemes for advance clearance that section 401 ITEPA 2003 applies to payments from them made as compensation for loss of employment through redundancy, see EIM13790.