A common reason for the termination of an employment is redundancy. Redundancy has a special meaning, which is set out at EIM13800.
The Employment Rights Act 1996 provides that employees made
redundant must receive a minimum level of compensation for that
redundancy. This is called a
statutory redundancy payment, for further details
In addition, many employers provide an additional payment for the same reason. This is called a non-statutory redundancy payment, for further details see EIM13775 and subsequent guidance.
The significance of redundancy payments is that they are always charged to tax under Section 401 ITEPA 2003 (see EIM13000 onwards). The case of Mairs v Haughey (66TC273) held that such payments, even where provided for under contractual terms, are not earnings from employment within Section 62 ITEPA 2003 (see EIM00515).
It is vital to identify redundancy payments properly because: