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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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The benefits code: interaction of the benefits code with the taxing of payments and benefits received on termination or change of employment

Part 3 Chapters 2 to 11 and Section 401 ITEPA 2003

Where a payment or benefit is received in connection with a termination of employment, or a change in the nature of the duties of, or earnings from, an employment, there may be a potential overlap between the benefits code (see EIM20006) and the rules on termination and change of employment (see EIM13000).

Part 3 Chapters 2 to 11 charge to tax the expenses and benefits that make up the benefits code. These are listed in Chapter 2 and include at Chapter 10 the charge on general benefits provided to an employee by reason of the employment that do not fall within any of Parts 3 to 9, which contain the rules for specific benefits. For example, Chapter 4 concerns vouchers and credit tokens.

Section 401 charges to tax payments and benefits received in connection with:

  • a termination of employment, or
  • a change in the duties of, or earnings from, an employment.

Termination of employment

Where a payment or benefit is received after termination of an employment the benefits code does not apply except in the exceptional circumstances referred to in EIM20040. Consequently at termination there is no overlap between Chapter 10 and Section 401. A tax charge may arise under Section 401 if the payment or benefit is not chargeable under any other provision (see EIM12810).

Benefits given during employment can continue after that employment terminates, in which case it may be necessary to apportion the benefit between Chapter 10 and Section 401, see EIM13905.

Change in the nature of employment

See EIM21008.