SE13790 - Termination payments and benefits: redundancy payments: Statement of Practice 1/1994: clearance applications

A District office may be asked to give a “clearance” that Section 148 ICTA 1988 applies to payments and benefits to be made under a proposed non-statutory redundancy scheme.

An Inspector must never give a clearance without full scrutiny of the scheme in written correspondence.

Paragraph 5 of Statement of Practice 1/1994 says:

“An employer or any other person operating a redundancy scheme, who wishes to be satisfied that lump sum payments under a scheme will be accepted as liable to tax only under Section 148 ICTA 1988 ICTA should submit the full facts to the Inspector for consideration. Applications for clearance should be made in writing and should be accompanied by the scheme document together with the text of any intended letter to employees which explains its terms.”

Whilst such an application should be given priority wherever possible, reasonable time must be allowed for consideration of the written material. What is a “reasonable time” will vary with the scope and complexity of the scheme and the issues it raises. If you are given a “deadline” which cannot reasonably be met, refuse to deal with the application and offer an alternative date.

If you conclude that a particular lump sum within the scheme is not clearly within Section 148 ICTA 1988, you can give a clearance that specifically excludes that lump sum.

Once a clearance has been given, take no action to disturb it unless you suspect it is being used for tax avoidance purposes. For example, new information may emerge suggesting that payments are not genuinely for redundancy. Submit the papers to Employment Income Technical with a report under ADM6:109 before commenting on payments you consider may have been made for tax avoidance purposes.