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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Termination payments and benefits: redundancy: application of statutory definition

The statutory definition of redundancy in EIM13800 means that redundancy involves a reduction in need for employees in the business. A dismissal is by reason of redundancy only when it is caused by such a reduced need.

This reduced need can arise in many ways, for example because of:

  • disposal of part of the business, or
  • relocation of the business, or
  • the introduction of new methods of work that reduces the number of employees needed.

An employee may also be dismissed by reason of another employee’s redundancy. For example, employee A’s job disappears because the place of work is closed but it is employee B who is dismissed. The employer wants to retain A. Employee B’s dismissal is often called a bumped redundancy but remains in law a redundancy. Particularly in large-scale redundancy programmes, bumped redundancies may be common. Redundancies can also be voluntary. The essential point is to be satisfied that the total number of redundancies matches the reduced need for employees.

If a person’s functions are taken over by someone else without bumped redundancy being evident, consider EIM12810.

In all cases, any package made at the time of redundancy must be divided up into its elements to ensure that each element is dealt with correctly. There may be elements within it taxable under Sections other than Section 401 ITEPA 2003 (see EIM12810 and example EIM13900).