Termination payments Chapter 28 Flashcards
If a termination payment is given to employees in return for services performed?
Taxable as earnings
What are most termination payments?
Compensation for loss of office rather than a reward for serviced performed
What should you ask yourself when thinking if S401 applies?
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
S401 only applies to…
redundancy payments, non contractual/ ex-gratia payments
Termination payment due to death, injury or disability
exempt
What limit applies to S401
30k
Termination payment due to death, injury or disability
exempt
Payment to registered pension scheme as part of a termination payment?
Fully exempt from tax
How is the excess of 30k taxed?
At source via PAYE
If the termination payment is made before the form P45
Income tax will be deducted using the employees tax code
If the termination payment is made after form P45?
0T tax code on a week 1/month 1 basis.
What should the 30k exemption be applied to first?
Earlier payments and cash before non cash benefits
What can statutory redundancy pay not exceed?
17,130
What should the 30k exemption be applied to first?
Earlier payments and cash before non cash benefits
What are redundancy payments ALWAYS taxed under?
S401 -this is the case even if a non statutory redundancy payment is contractual
Payments made to employees on retirement…
Likely to be fully taxable with no 30k exemption. This includes payments made from a EFRBS
What are redundancy payments ALWAYS taxed under?
S401 -this is the case even if a non statutory redundancy payment is contractual
If termination is ‘age related’
HMRC will consider it to be on retirement
Payment to registered pension scheme as part of a termination payment?
Fully exempt from tax
If termination is ‘age related’
HMRC will consider it to be on retirement
If the employment contract gives the ER the right to make a PILON?
Taxable in full as earnings, if not it will be considered under S401
What is a PENP?
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
What happens to continuing benefits?
taxed and subject to class 1a NIC’s in the year of receipt
What are the conditions for outplacement services to be exempt?
They mustve worked at the company for two years and the services must be open to everyone
Retraining courses?
exempt- if designed to impart skills or knowledge to be used in another employment or self employment.
Restrictive covenant payments made to employees?
Taxable and class 1 nicable
When are employee legal costs after a dispute on termination (recovered from the ER) not taxable?
-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
When does a report regarding termination payments need to be filed?
by 6th july IF the payment exceeds 30k and includes non cash benefits.
How will termination payments be taxed?
As the top slice of income (need a fourth column in IT comp)
Can an employer ask HMRC for guidance about whether S401 applies?
Yes
