HMRC internal manual

Employment Income Manual

Termination payments and benefits: redundancy payments: Statement of Practice 1/1994: clearance applications

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A local HMRC office may be asked to give a clearance that Section 401 ITEPA 2003 applies to payments and benefits to be made under a proposed non-statutory redundancy scheme.

An Inspector must never give a clearance without full scrutiny of the scheme in written correspondence.

Paragraph 5 of Statement of Practice 1/1994 says:

“An employer or any other person operating a redundancy scheme, who wishes to be satisfied that lump sum payments under a scheme will be accepted as liable to tax only under Section 148 ICTA 1988 ICTA (Note: now Section 401 ITEPA 2003) should submit the full facts to the Inspector for consideration. Applications for clearance should be made in writing and should be accompanied by the scheme document together with the text of any intended letter to employees which explains its terms.”

This wording indicates that what HMRC is willing to consider is a scheme in its final documented form. The clearance procedure is not available for schemes in process of development and should not be used as a tool to assist that development. If it appears that the procedure is being used as a means of amending a proposed scheme for tax purposes, clearance should be refused.

Whilst such an application should be given priority wherever possible, reasonable time must be allowed for consideration of the written material. What is a reasonable time will vary with the scope and complexity of the scheme and the issues it raises. If you are given a deadline that cannot reasonably be met, offer to deal with the application by an alternative date.

If you conclude that a particular sum or benefit within the scheme is not clearly within Section 401 ITEPA 2003, you can give a clearance that specifically excludes that sum or benefit.

Once a clearance has been given, take no action to disturb it unless you suspect it is being used for tax avoidance purposes. For example, new information may emerge suggesting that payments are not genuinely for redundancy(This content has been withheld because of exemptions in the Freedom of Information Act 2000)