Redundancy payments?

Redundancy payments?

Didn't find your answer?

I have a client who is making a raft of redundancy payments to selected employees.

My, (probably flawed), understanding was that any kind of contractual entitlement, (over and above the statutory amount), would make it taxable.

The contract provides for an 'enhanced redundancy payment' of £x per week, per year of service.

All comments/help would be greatly appreciated.
mark

Replies (8)

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By User deleted
01st Apr 2008 12:02

Andrew
You are correct. The Statement of Parctice /1994 relates to advance clearance. Link to the Statement of Practice below

http://www.hmrc.gov.uk/manuals/eimanual/EIM13790.htm

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By User deleted
01st Apr 2008 10:13

Probably not taxable
HMRC's Further Guide to PAYE and NIC seems to provide a clear answer at the top of page 91. It is available at at http://www.hmrc.gov.uk/guidance/2007/cwg2.pdf (p96 in the file). So long as the payments result from genuine redundancies, rather than people being terminated for other reasons, it seems the contractual redundancy payments will be tax-free up to £30K and free of NIC (the statutory element would be anyway).

This is in contrast to the Coldicott v EMI case where the employer simply had a right to terminate the employment contract by making a payment, which was held to be subject to PAYE/NI in full.

If in doubt, my recollection is that HMRC have a Statement of Practice under which they will give pre-transaction clearance if asked.

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By neileg
27th Mar 2008 16:50

Don't make me laugh!
I don't post in here frivolously, but I'm as capable of being wrong as anyone. Especially in tax since I left private practice 18 years ago!

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By User deleted
27th Mar 2008 15:49

OK Neil
I can see what you mean and indeed as i said earlier i have known the £30K limit to be used to shelter any possible taxable issues but advice i have received over the years from Big 4 practices isn't as clear as this.

Perhaps HMRC are more amenable to public sector Ts&Cs rather that private companies where i have worked.

I'm not sure that i should disagree with you Neil as your other responses to this forum are always well thought out and i would generally agree with you.

Anyway every case is always settled on it's merits and i'm not sure my prattling on will help Mark.

Rgds
Liam

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By neileg
27th Mar 2008 12:04

Confused, now
I don't understand your last posting, Liam.

I work in the public sector and enhanced redundancy payments are normal and form part of the conditions of service. These are certainly not taxable to the extent that they do not exceed £30k. I consider that this is the same as the position that Mark has outlined and fits with the para I quoted from the EIM.

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By User deleted
27th Mar 2008 11:00

Not sure i diasgree with Neil
Neil
I may have been unclear - i was trying to confirm that as per EIM13760 most statutory payments are unlikely to be taxed as they are below the £30K threshold.

Other "redundancy" amounts taxable.

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By neileg
26th Mar 2008 17:00

Not sure I agree with Liam
EIM13750 includes the following:
The significance of redundancy payments is that they are always charged to tax under Section 401 ITEPA 2003 (see EIM13000 onwards). The case of Mairs v Haughey (66TC273) held that such payments, even where provided for under contractual terms, are not earnings from employment within Section 62 ITEPA 2003 (see EIM00515).
This seems to cover the issue raised by Mark.

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By User deleted
26th Mar 2008 14:08

EIM
See EIM 12850,13005,& 13500 for HMRC view

I agree that statutory redundancy is tax free, subject to £30K, enhanced is normally taxable if contractually due or due by custom.

I have known the £30K shelter to be used to cover these enhanced amounts but i couldn't comment in how reliable this is.

Good Luck

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