EIM13990 - Termination payments and benefits: example: redundancy payments: Statement of Practice 1/1994: conditional payments

EIM13785 explained the need to identify payments that are for something other than compensation for redundancy. The question often arises where payments are conditional on staying to a specified date. These may be within Section 62 ITEPA 2003 (see EIM00515) rather than Section 401 ITEPA 2003.

Example 1

Company A is shutting a factory and making all the employees redundant. The redundancy scheme provides for:

• statutory redundancy payments in accordance with the Employment Rights Act 1996 (see EIM13760) plus
• non-statutory redundancy payments based on length of service and final salary (see EIM13775) plus
• a payment of £500 to each employee who stays to the redundancy date.

The payment of £500 is for continuing to serve as an employee and therefore falls within Section 62 ITEPA 2003. It is not compensating for the redundancy itself.

Example 2

The facts are as in example 1 except:

• there is no £500 payment offered and
• the non-statutory redundancy payment is made conditional on the employee staying to the redundancy date.

In this case, the non-statutory redundancy payment does not change its character simply because the employee is required to meet a specific condition before it is paid. It is therefore within Section 401 ITEPA 2003.