PAYE operation: lump sum termination payments: repayment claims following termination payment
This subject applies where claims are made in the tax year the lump sum termination payment is made. The term lump sum termination payment also covers lump sum redundancy payments.
For claims made in later years a review of the liability should be made in the normal way.
An individual might complain that too much tax was deducted from a termination payment made in the current tax year. For instance, if PAYE was operated in the normal way at the time of the payment, tax may have been deducted at rates higher than the overall rate for the year. This happens particularly when payment is made early in the tax year.
Details of the redundancy / lump sum termination payment will either be provided on
- A P45 if the payment was made before the P45 was produced
- In the form of a letter if the payment was made after the P45 was produced
See PAYE74015 for further information.
Before you make any repayment you should determine the customer’s position as at the date their employment was terminated. If, at that date, they satisfied the SA criteria of
- The total taxable income before allowances are set off exceeds £100,000
you should set up the SA record in accordance with Action guide tax40114. Advise the customer, using OCC144, that no in-year repayment can be made because they are now an SA taxpayer.
For all other cases you should follow the guidance relevant to the type of repayment claim made irrespective of whether the correct claim form has been completed or not.
Where the customer is not in employment and is not claiming ESA / JSA but has a pre-existing and continuing PAYE source, follow the guidance in Action guide tax40085 (HMRC Intranet).
Where the customer has found a new employment, follow the guidance in Action guide tax40085.
Where the customer is claiming that they will not work again or claim any taxable benefits before the next 6 April, you should follow the cessation repayment guidance at PAYE94025.
Where the customer is claiming a repayment but now has SA criteria because they are going to / have become self employed, follow the guidance at PAYE94025.
Where the customer is claiming ESA / JSA follow the guidance in Action guide tax40085.
Where the customer is actively seeking a new employment but has been unemployed for 4 weeks and is claiming a repayment follow the guidance in Action guide tax40064 and / or Action guide tax40103.
Where a valid repayment claim is made, you will need to ask the individual for the following if it has not already been provided
- Parts 2 and 3 of form P45, if held
For cases where the termination payment is not included in the P45 figures
For sight of the documentary evidence the customer has received from their former employer in which details of the termination payment are shown. Details in the document should include
- The date of the payment(s)
- The gross amount of the payment(s)
- The amount of PAYE tax deducted from each payment
- Confirmation that it is a post leaving payment
Note: If the customer does not hold any documentary evidence of the payment, advise them to obtain such evidence from their former employer as the claim cannot be processed without it.
- The rate of occupational pension, if received
If not currently employed, is he or she
- Finally retired and not seeking further employment
- Not seeking or taking up employment until after the forthcoming 5 April
- Seeking full time employment
- Seeking part time employment (if so what is the anticipated rate of pay?)
- Is now in receipt of Jobseeker’s Allowance (JSA) or Employment Support Allowance (ESA)
- Started in business on own account or intending to do so. Where the customer has started in business, to allow you proceed with their claim you should ask them for an estimate of the income / profit they will receive in the year to which the termination payment refers