EIM13905 - Termination payments and benefits: example: interaction with benefits received during employment
Section 401 ITEPA 2003 and the benefits code
Benefits given during employment can continue after it. This
example shows how to calculate the taxable amounts for the year of
assessment in which the termination occurs where the benefits code
(see
EIM21006) is involved. There is another
example at
EIM13906 where car benefits) are
involved.
An employer pays £500 per month into a scheme to provide
medical insurance cover for an employee. The arrangement is such
that Section 62 ITEPA 2003 (see
EIM00515) does not apply but the
benefits code (see
EIM21006) does. The cost is taxable
under the benefits code following
EIM21761.
An agreement to terminate employment on 5 January 2004
provides for:
- a lump sum of £35,000 and
- continuation of the medical insurance cover for 6 months following termination.
Following EIM12815:
- the payments in 2003/04 before termination are charged under the benefits code following Part 3 Chapter 10 ITEPA 2003 (see EIM21761) in the sum of £500 x 9 = £4,500
- the payments in 2003/04 after termination are charged under Section 401 ITEPA 2003 at £1,500 (£500 x 3). This is wholly chargeable as the £30,000 threshold (see EIM13505) is used against the cash payment of £35,000 (see EIM13520).
