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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: redundancy payments: Statement of Practice 1/1994: conditional payments

EIM13785 explained the need to identify payments that are for something other than compensation for redundancy. The question often arises where payments are conditional on staying to a specified date. These may be within Section 62 ITEPA 2003 (see EIM00515) rather than Section 401 ITEPA 2003.

Example 1

Company A is shutting a factory and making all the employees redundant. The redundancy scheme provides for:

  • statutory redundancy payments in accordance with the Employment Rights Act 1996 (see EIM13760) plus
  • non-statutory redundancy payments based on length of service and final salary (see EIM13775) plus
  • a payment of £500 to each employee who stays to the redundancy date.

The payment of £500 is for continuing to serve as an employee and therefore falls within Section 62 ITEPA 2003. It is not compensating for the redundancy itself.

Example 2

The facts are as in example 1 except:

  • there is no £500 payment offered and
  • the non-statutory redundancy payment is made conditional on the employee staying to the redundancy date.

In this case, the non-statutory redundancy payment does not change its character simply because the employee is required to meet a specific condition before it is paid. It is therefore within Section 401 ITEPA 2003.