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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Termination payments and benefits: example: introduction

Sections 62, 225 and 401 ITEPA 2003

A taxpayer tells you that a redundancy payment of £33,000 has been taxed in full under PAYE. You find that this means that £3,000 was subjected to PAYE after applying the £30,000 threshold under EIM13505.

You make enquiries and find that the elements of the payment were:

  • a contractual payment in lieu of notice of £2,500. This is taxable under Section 62 ITEPA 2003 (see EIM12976).
  • a bonus of £7,500 for the last employment period. This is also taxable under Section 62 ITEPA 2003.
  • a sum of £10,000 for a new undertaking not to compete with the employer after termination. This is taxable under Section 225 ITEPA 2003 (see EIM03600).
  • a payment for redundancy of £13,000. This is shown to be within the definition of redundancy in EIM13800 and so is the only part of the package within Section 401 ITEPA 2003. It is within the £30,000 threshold (see EIM13505).

The total employment income that counts as general earnings is £20,000 and the employer should have operated PAYE accordingly.