Termination payments Chapter 28

Question 1

If a termination payment is given to employees in return for services performed?

Answer 1

Taxable as earnings

Question 2

What are most termination payments?

Answer 2

Compensation for loss of office rather than a reward for serviced performed

Question 2

What should you ask yourself when thinking if S401 applies?

Answer 2

Is it contractual- i.e if there was a clause in a contract OR an expectation of receipt of the termination payment then it WONT apply

Question 3

S401 only applies to…

Answer 3

redundancy payments, non contractual/ ex-gratia payments

Question 3

Termination payment due to death, injury or disability

Answer 3

exempt

Question 3

What limit applies to S401

Answer 3

30k

Question 3

Termination payment due to death, injury or disability

Answer 3

exempt

Question 3

Payment to registered pension scheme as part of a termination payment?

Answer 3

Fully exempt from tax

Question 4

How is the excess of 30k taxed?

Answer 4

At source via PAYE

Question 4

If the termination payment is made before the form P45

Answer 4

Income tax will be deducted using the employees tax code

Question 4

If the termination payment is made after form P45?

Answer 4

0T tax code on a week 1/month 1 basis.

Question 5

What should the 30k exemption be applied to first?

Answer 5

Earlier payments and cash before non cash benefits

Question 5

What can statutory redundancy pay not exceed?

Answer 5

17,130

Question 5

What should the 30k exemption be applied to first?

Answer 5

Earlier payments and cash before non cash benefits

Question 6

What are redundancy payments ALWAYS taxed under?

Answer 6

S401 -this is the case even if a non statutory redundancy payment is contractual

Question 6

Payments made to employees on retirement…

Answer 6

Likely to be fully taxable with no 30k exemption. This includes payments made from a EFRBS

Question 6

What are redundancy payments ALWAYS taxed under?

Answer 6

S401 -this is the case even if a non statutory redundancy payment is contractual

Question 6

If termination is ‘age related’

Answer 6

HMRC will consider it to be on retirement

Question 6

Payment to registered pension scheme as part of a termination payment?

Answer 6

Fully exempt from tax

Question 6

If termination is ‘age related’

Answer 6

HMRC will consider it to be on retirement

Question 6

If the employment contract gives the ER the right to make a PILON?

Answer 6

Taxable in full as earnings, if not it will be considered under S401

Question 6

What is a PENP?

Answer 6

post employment notice pay, not eligible for the 30k.
Basic pay x days in notice period/days preceding the period in which the termination payment was made- T (amounts already taxable as earnings excluding holiday pay and term bonuses).
CAN WORK IN MONTHS TO SIMPLIFY THINGS

Question 6

What happens to continuing benefits?

Answer 6

taxed and subject to class 1a NIC’s in the year of receipt

Question 6

What are the conditions for outplacement services to be exempt?

Answer 6

They mustve worked at the company for two years and the services must be open to everyone

Question 6

Retraining courses?

Answer 6

exempt- if designed to impart skills or knowledge to be used in another employment or self employment.

Question 6

Restrictive covenant payments made to employees?

Answer 6

Taxable and class 1 nicable

Question 6

When are employee legal costs after a dispute on termination (recovered from the ER) not taxable?

Answer 6

-agreement reached out of court
-any payment of costs by the employer is paid directly to the employees lawyer under the terms of a compromise agreement
-if the ER pays under a court order
BASICALLY= if the ER has to pay bc of court=exempt. If the EE recovers the cost form the ER in a different way=treat under s401

Question 6

When does a report regarding termination payments need to be filed?

Answer 6

by 6th july IF the payment exceeds 30k and includes non cash benefits.

Question 6

How will termination payments be taxed?

Answer 6

As the top slice of income (need a fourth column in IT comp)

Question 6

Can an employer ask HMRC for guidance about whether S401 applies?

Answer 6

Yes