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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: example: Section 401 ITEPA 2003: £30,000 threshold: “associated” employers

Section 404(1)(c) to (3) ITEPA 2003

Example 1

An employee was made redundant by company A on 1 July 2003. A payment within Section 401 ITEPA 2003 of £26,000 was paid on the same date, covered by the £30,000 threshold (see EIM13505).

The employee immediately found a new job with Company B but was again made redundant on 1 March 2004, when £6,000 within Section 401 ITEPA 2003 was received.

Enquiries show that Company B held the majority of the voting shares in company A from 1950 until 2011.

Should the payments be aggregated before the £30,000 threshold is applied?

Find the “termination or change” date (see EIM13540, last bullet) - 1 March 2004.At that date, company B controls company A so they are “associated” employers under Test A of EIM13540. It follows that all payments and benefits within Section 401 ITEPA 2003 charged on this employee must be aggregated. In this case the total is £32,000 (£26,000 + £6,000). The £30,000 threshold is then applied, leaving £2,000 to be charged for 2003/04 (see EIM12855).

Example 2

An employee was made redundant by a train operating company (TOC1) on 1 July 2003 and received £65,000 within Section 401 ITEPA 2003. The employee was taken on a few weeks later by another train operating company (TOC2) but was again made redundant on 1 September 2004, this time receiving £25,000 within Section 401 ITEPA 2003.

Enquiries show that neither company has ever controlled the other. TOC1 was controlled by company A until 1 January 2004 when it was acquired by company B. That was still the case at 1 September 2004. Company B had always controlled TOC2.

Should the payments be aggregated before the £30,000 threshold is applied?

Find the “termination or change date” (see EIM13540, last bullet) - 1 September 2004. At that date:

  • neither TOC controls the other, so they are not “associated” under Test A in EIM13540 
  • TOC2 was controlled by company B. TOC1 was also controlled by company B. So TOC1 {#}and TOC2 are “associated” under Test B in EIM13540 

It follows that all payments and benefits within Section 401 ITEPA 2003 to this employee made by both companies must be aggregated. In this case, the total is £90,000 (£65,000 + £25,000). The £30,000 threshold is fully used against the first payment, leaving the £25,000 chargeable in full for 2004/05 (see EIM12855)

Example 3

An employee was made redundant by a train operating company (TOC1) on 1 July 2003 and received £40,000 within Section 401 ITEPA 2003. The employee was taken on a few weeks later by another train operating company (TOC2) but was again made redundant on 1 September 2004, this time receiving £15,000 within Section 401 ITEPA 2003.

Enquiries show that neither company has ever controlled the other. TOC1 was controlled by company A until 1 August 2004 when it was acquired by company B. That was still the case at 1 September 2004. Company A had always controlled TOC2.

Should the payments be aggregated before the £30,000 threshold is applied?

Find the “termination or change date” (see EIM13540, last bullet) - 1 September 2004. At that date:

  • Neither TOC controls the other, so they are not “associated” under Test A in EIM13540 
  • TOC2 was controlled by company A. TOC1 was controlled by company B. So TOC1 and TOC2 are not “associated” under Test B in EIM13540 
  • On 1 July 2003, which is another “termination or change date” (see EIM13540, last {#}bullet),TOC1 was controlled by company A. TOC2 was then also controlled by company A. So Test C in EIM13540 is satisfied and TOC1 and TOC2 are “associated”

It follows that all payments and benefits within Section 401 ITEPA 2003 to this employee made by both companies must be aggregated. In this case the total is £55,000 (£40,000 + £15,000). The £30,000 threshold is then fully used against the first payment, leaving the £15,000 chargeable in full for 2004/05 (see EIM12855)