BIM47210 - Specific deductions: staffing costs: additional payments to redundant employees

ICTA88/S90 provides relief for additional payments to redundant employees, up to a maximum of three times the amount of the statutory redundancy payment (or three times the ‘corresponding amount': see BIM47205). In other words, if the statutory payment is £1,000, additional payments may be relieved under ICTA88/S90 up to a maximum of £3,000.

The conditions for the relief are:

• there must first be entitlement under ICTA88/S579.
• the additional payment would be allowable as a deduction on general principles (see BIM47200) but for the permanent discontinuance of the trade.

The definition of discontinuance includes deemed cessation under ICTA88/S113 (1) and ICTA88/S337 (1).

Although in strictness the relief only applies where a trade is permanently discontinued, it should in practice be taken as covering the case where a part of the trade is discontinued, see SP11/81.

The relief extends only to payments to a redundant employee which would satisfy the ‘wholly and exclusively' test of ICTA88/S74 (1)(a), but for the discontinuance of the trade. Payments made as part of a bargain for a sale of shares (as in George Peters & Co Ltd v Smith [1963] 41TC264 see BIM42955) do not qualify for the relief.

Payments after trade ceases

Where a qualifying additional payment is made after the trade ceases, it should be treated as though it was made on the last day on which the trade or business was carried on.

Further guidance on timing of deductions is at BIM47215.