EIM13900 - Termination payments and benefits: example: introduction

Sections 62, 225 and 401 ITEPA 2003

A taxpayer tells you that a redundancy payment of £33,000 has been taxed in full under PAYE. You find that this means that £3,000 was subjected to PAYE after applying the £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 £2,500 - this is taxable under section 62 ITEPA 2003 (see EIM12976)
• a bonus of £7,500 for the last employment period - this is also taxable under section 62 ITEPA 2003
• a sum of £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 £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 £30,000 threshold (see EIM13505)

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