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HMRC internal manual

Pensions Tax Manual

Contributions: the nature of contributions: payments for members

Glossary  PTM000001

Redundancy payments
Member contribution - cheques drawn on business/partnership accounts
Premature member contribution

Redundancy payments

If an individual has been made redundant and as a result receives payments from their employer, it should be established exactly to what the payments relate. As well as the actual redundancy payment, the payments may be made up of items such as usual wages or salary, a payment in lieu of notice and holiday pay. These will be relevant UK earnings (see PTM044100).

Not all of the redundancy payment is treated as employment income. Any part of the true redundancy payment which is below the £30,000 tax exempt threshold is not classed as employment income and does not count towards total earnings received in the tax year of receipt. However any amount above the £30,000 threshold is classed as employment income and is also relevant UK earnings.


John has been made redundant and on his last day of service with his employer he received a payment of £35,000. The payment was made up as follows:

1 month’s salary £1,500
1 month’s salary in lieu of notice £1,500
Holiday pay £750
Redundancy payment £31,250

In these circumstances the first three items are relevant UK earnings. In addition £1,250 of his redundancy payment is also relevant UK earnings.

Member contribution - cheques drawn on business/partnership accounts

A contribution may be made by direct debit or standing order, or a cheque drawn on a:

  • business account or
  • partnership account.

These may be accepted as a payment by the individual in exactly the same way as if the individual had made the contribution from their personal resources.

However it must be clear that the contribution is a member contribution and not an employer contribution. The business or partnership should be able to confirm that they have been reimbursed by the member for the amount of the payment.

Premature member contribution

A contribution cannot be regarded as “paid” under a pension arrangement until that arrangement is in force. All appropriate documentation must be provided and accepted before such an arrangement can be considered to be in force.

Any payment made prior to an arrangement being in force cannot be considered to be a “contribution” for pension purposes. However if a payment is made at the same time as the initial application documentation is provided to the scheme, the scheme may hold this payment and apply it as a contribution on the first day on which the arrangement comes into force.