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HMRC internal manual

National Insurance Manual

Class 1 NICs: Earnings of employees and office holders: Payments made on termination of employment: Redundancy payments: Definition of redundancy

The best indication of “redundancy” is that contained in the Employment Rights Act 1996. For an employee to be dismissed by reason of redundancy the dismissal has to be:

“attributable wholly or mainly to” – 

  • the fact that his employer has ceased, or intends to cease, to carry on business for the purposes of which the employee was employed by him, or has ceased, or intended to cease, to carry on that business in the place where the employee was so employed, or
  • the fact that the requirements of that business for the employee to carry out work of a particular kind, or for the employee to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish.”

The large-scale redundancies which have occurred in recent years in industries such as mining, shipbuilding and steel are good examples of genuine redundancy situations. Few people would doubt that the payments made in those instances were, and are, genuine redundancy payments.

See NIM02580 for general guidance on NIC liability in respect of redundancy payments.