SE13760 - Termination payments and benefits: statutory redundancy payments
Sections 579(1) & 580(3) ICTA 1988
By statute, a statutory redundancy payment made under:
- Section 135 Employment Rights Act 1996 or
- the Employment Rights (Northern Ireland) Order 1996
is exempt from liability to tax under Schedule E
except for any liability arising under Section 148
ICTA 1988.
In practice there is unlikely to be tax payable under Section
148 ICTA 1988 because most statutory payments are covered by the
£30,000 exemption (
SE13505). However all payments in respect
of a termination must be added together in applying that exemption
(
SE13530).
Background
A statutory redundancy payment is due where an employee is
made redundant with at least 2 years’ service since age 18.
This includes an employee working under a fixed- term contract
agreed, renewed or extended since 1 October 2002. Office-holders
such as directors qualify if they work under a contract of
employment. Employees cease to qualify on reaching their normal
retirement age (or 65 if later). Members of the armed forces,
Parliamentary staff, Crown servants and some others cannot qualify.
A statutory redundancy payment is due only where the employee
is dismissed (as compared with resignation). For this purpose, an
employee volunteering for redundancy is dismissed. If the employee
leaves before the redundancy date by agreement, payment remains
due.
Statutory redundancy pay is calculated as the total of:
- for each complete year of service between 18 and 21, ½ a week’s pay
- for each complete year of service between 22 and 40, 1 week’s pay
- for each complete year of service between 41 and 65, 1 ½ week’s pay
NB
- service longer than 20 years does not count
- a “week’s pay” is the amount due under the employment contract on the date that the minimum notice of termination was or should have been given. The minimum is 1 week per year of service up to a maximum of 12 weeks. A week’s pay cannot exceed £260 (from 1 February 2003. This limit is uprated annually).
