EIM13900 - Termination payments and benefits:
example: introduction
Sections 62, 225 and 401 ITEPA 2003
A taxpayer tells you that a redundancy payment of £33,000
has been taxed in full under PAYE. You find that this means that
£3,000 was subjected to PAYE after applying the £30,000
threshold under
EIM13505.
You make enquiries and find that the elements of the payment
were:
- a contractual payment in lieu of notice of
£2,500. This is taxable under Section 62 ITEPA 2003 (see
EIM12976).
- a bonus of £7,500 for the last
employment period. This is also taxable under Section 62 ITEPA
2003.
- a sum of £10,000 for a new
undertaking not to compete with the employer after termination.
This is taxable under Section 225 ITEPA 2003 (see
EIM03600).
- a payment for redundancy of £13,000.
This is shown to be within the definition of redundancy in
EIM13800 and so is the only part of the
package within Section 401 ITEPA 2003. It is within the
£30,000 threshold (see
EIM13505).
The total employment income that counts as general earnings is
£20,000 and the employer should have operated PAYE
accordingly.
