EIM13900 - Termination payments and benefits: example: introduction

Sections 62, 225 and 401 ITEPA 2003

A taxpayer tells you that a redundancy payment of 拢33,000 has been taxed in full under PAYE. You find that this means that 拢3,000 was subjected to PAYE after applying the 拢30,000 threshold under EIM13505. The payment was paid in full before 6 April 2018.

You make enquiries and find that the elements of the payment were:

  • a contractual payment in lieu of notice of 拢2,500 - this is taxable under section 62 ITEPA 2003 (see EIM12976)
  • a bonus of 拢7,500 for the last employment period - this is also taxable under section 62 ITEPA 2003
  • a sum of 拢10,000 for a new undertaking not to compete with the employer after termination - this is taxable under section 225 ITEPA 2003 (see EIM03600)
  • a payment for redundancy of 拢13,000 - this is shown to be within the definition of redundancy in EIM13800 and so is the only part of the package within section 401 ITEPA 2003. It is within the 拢30,000 threshold (see EIM13505)

The total employment income that counts as general earnings is 拢20,000 and the employer should have operated PAYE accordingly.