PAYE74015 - PAYE operation: lump sum termination payments: how employers operate PAYE on termination payments

The Employment Income (EIM) Manual at EIM12805 onwards tells you about the tax treatment of lump sum termination payments.

A payment or benefit within Section 401 ITEPA 2003 is employment income of the year in which it is received. EIM13110 defines when it is received.

For taxable amounts the PAYE procedure an employer must follow depends on when and how the payment is made.

Taxable Termination payment is made before form P45 is issued

The employer must

• Add the amount to gross pay and apply normal PAYE procedures
• Notify HMRC, in cases where packages of over £30,000 are taxable, of the

The employer must

• Deduct tax from the taxable amount at the Basic Rate in force for the year in which payment is made
• Write on the Deductions Working Sheet

• Notify HMRC, in cases where packages of over £30,000 are taxable, of the

The employer is not required to operate PAYE on the non cash element of the payment.

Any case of doubt or difficulty regarding the operation of PAYE should be sent to PSN PAYE Technical, Shipley.