Taxation of redundancy payments


Produced in partnership with Sam Whitaker of Debevoise & Plimpton LLP
Practice notes

Taxation of redundancy payments


Produced in partnership with Sam Whitaker of Debevoise & Plimpton LLP

Practice notes
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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

Sam Whitaker
Sam Whitaker

Lawyer, Debevoise & Plimpton LLP

Sam is an International Counsel in the London office of Debevoise & Plimpton LLP. He provides the full range of employment and benefits advice on transactions and stand-alone employment matters. He has substantial experience of advising on the employment and benefits aspects of various transactions, including UK listings, share and asset acquisitions and disposals (both UK-based and multi-jurisdictional transactions), joint ventures and other transactions.
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He provides the full range of stand-alone employment advice including the implementation of employment and benefit arrangements for senior executives, implementing executive severance arrangements, managing UK and international redundancy exercises and related consultation requirements, the establishment of share incentive and bonus plans, employment litigation involving restrictive covenants, unfair and wrongful dismissal and discrimination issues.
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He also advises on compliance with regulatory requirements on remuneration, in particular the FCA/PRA’s Remuneration Codes and, at a European level, CRDV.

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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Redundancy definition
What does Redundancy mean?

When an employee's role has diminished or disappeared such that it is no longer required by the employer.

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