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Redundancy is one of five ways in which an employment contract may be terminated unilaterally by an employer where such termination will be potentially a fair dismissal. The other four potentially fair reasons for dismissal are:

1. •

   the employee is not capable of performing the job

2. •

   the employee’s conduct is incompatible with continued employment

3. •

   the employee cannot continue in the job without contravention of a legal restriction, or

4. •

   the residual category of ‘some other substantial reason’

Section 309 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) provides that ‘no liability to income tax in respect of employment income other than earnings arises by virtue of a redundancy payment or an approved contractual payment, except where it does so by virtue of Chapter 3 of Part 6 (payments and benefits on termination of employment etc)’. In other words, statutory redundancy payments, and contractual payments made under section 157 of the Employment Rights Act 1996 (ERA 1996) (where trade unions and employers agree that a contractual scheme will override entitlement