SE13745 - Termination payments and benefits: payments for outplacement counselling

Sections 589A and 589B ICTA 1988

Payments for “outplacement counselling” which meet certain conditions are exempt from tax under Schedule E.

When an office or employment is terminated, the employer may pay for the employee to receive professional advice and assistance designed to help the employee cope with the situation and find a new job. Such professional advice is known as “outplacement counselling” and may consist of anything from a single advisory interview to ongoing assistance for a period of several months. It has become a common feature of termination packages offered by employers, particularly where redundancy is involved.

The exemption applies to the provision of “qualifying counselling services”:

• to an employee whose employment terminates on or after 16 March 1993, whenever the expenditure is incurred by the employer or
• to an employee whose employment terminates before 16 March 1993, where the expenditure is incurred by the employer on or after 16 March 1993.

“Qualifying counselling services” are those which:

• enable the employee to adjust to the termination of his employment and/or find other gainful employment (including self-employment) and
• consist of advice and guidance to the employee, or of training to impart new skills or improve existing skills and
• are provided to a full-time employee with not less than two years' past service as part of arrangements by the employer which are available generally to employees in the employee’s particular class and
• for services provided before 29 May 2002 only, are provided in the United Kingdom.

The exemption applies not only to payments that the employer makes for the counselling itself but also to payments of any other associated fees and travelling expenses necessarily incurred in connection with the provision of the counselling. Reimbursed travelling expenses are exempted as follows:

• For 1997/98 and earlier, the cost of travelling (and subsistence) to the extent that they exceed the costs normally incurred by the employee in travelling between his home and normal place of employment, or in the case of a person who has already left his employment, between his home and the place of his former employment.
• For 1998/99 to 2001/02, the full cost of travelling to counselling sessions, plus related subsistence expenses.
• For 2002/03 onwards, as for 1998/99 to 2001/02, except that mileage allowance payments should be dealt with under the approved mileage allowance payments scheme (see SE31250 onwards ).

Note that Section 589A ICTA 1988 acts solely as an exemption from tax. It does not enable employees to obtain a tax deduction for costs of counselling which they may incur and which are not reimbursed by their employer.