EIM13842 - Termination payments and benefits: redundancy: redundancy payments made by Department of Trade and Industry, etc: tax treatment

Payments may be made to an employee by the Redundancy Payments Service (part of the Employment Relations Directorate of the Department of Trade and Industry and formerly of the Department of Employment) under the insolvency provisions in Part XII Employment Rights Act 1996. This may happen where the employer is unable to meet the statutory requirements to make these payments.

From 15 September 1997, the Redundancy Payments Service will calculate and account for tax and NICs due on these payments (see PA1.410 for details).

Note: A payment may include damages for the employer's failure to give due notice of the termination of the employment. Applying the Gourley principle (see EIM13070 for details), such damages are reduced to take into account the tax and National Insurance contributions that the employee would have paid had he or she stayed on and worked for the period of notice. That reduction is a reduction in the amount of the damages payable. It is not a payment of tax and National Insurance contributions and must not be repaid as such.