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HMRC internal manual

Employment Income Manual

Termination payments and benefits: severance payments under the working rule agreement for the engineering construction industry

Severance payments are made in the engineering construction industry in accordance with the working rule agreement for that industry. Working rule agreements are the result of negotiations between representatives of employers and trade unions that govern, on a national basis, rates of pay and conditions of service of hourly paid manual workers.

The payments are on a scale linked to Section 135 Employment Rights Act 1996 (see EIM13760). The scale is set out at EIM13838.

The payments are capped. So however many times an employee changes employment during a two-year period, the total of the severance payments over that period cannot exceed what would be the entitlement under Section 135 Employment Rights Act 1996 if the employee had remained continuously in one employment for the entire two-year period.

Treat all these cases as follows:

  • charge the severance payment only under Section 401 ITEPA 2003 provided that the reason for the severance is redundancy (see EIM13800)
  • where an employer makes payments above the prescribed amounts, charge the excess under Section 62 ITEPA 2003 (see EIM00515) and see that tax is deducted from it under PAYE
  • if an employee leaves his or her employment voluntarily or is dismissed for reasons other than redundancy, charge the amount paid under Section 62 ITEPA 2003 (see EIM00515).