Chapter EIM14000

CourtHM Revenue & Customs
Published date22 May 2014
Record NumberEIM14000
Sections 402A to 402E ITEPA 2003

An employee’s weekly remuneration is made up of £2,500 salary (chargeable to Income Tax as earnings within section 62 ITEPA 2003), BUPA medical insurance (chargeable to Income Tax under the benefits code) and a company car (chargeable to Income Tax under the benefits code).

The employee is entitled to a notice period of 6 weeks in accordance with the law. However, the employment contract provides for a notice period of 2 weeks on termination of the employment. It also includes a clause which provides for a contractual PILON of £5,000 if notice under the contract is not given. The employer terminates the employment on 13 July 2018 without giving any notice.

The employee receives a termination package totalling £85,000 on 13 July 2018. This package is made up of:

  • a statutory redundancy payment of £25,000 (falling within section 401(1)(a) ITEPA 2003)
  • compensation for loss of employment of £45,000 (falling within section 401(1)(a) ITEPA 2003)
  • a bonus payable on termination of £10,000 (falling within section 62 ITEPA 2003)
  • a contractual PILON of £5,000 (falling within section 62 ITEPA 2003)

The amount of the ‘relevant termination awards’ (see EIM13874) is the total termination package falling within section 401(1)(a) ITEPA 2003 less the amount of the statutory redundancy payment (£70,000 − £25,000). The amount of the relevant termination awards is £45,000.

The post-employment notice pay element is given by:

((BP × D) ÷ P) − T

See EIM13880 for further guidance on this formula.

BP = £2,500

BP is the employee’s basic pay in respect of the last full pay period (see EIM13882). Basic pay in this scenario will be the employee’s weekly remuneration excluding the amounts taxable under the benefits code.

D = 42 days

D is the number of calendar days in the post-employment notice period (see EIM13890). The employee is statutorily entitled to a notice period of 6 weeks but the contract provides for a period of notice of 2 weeks. The employee actually receives no notice. The post-employment notice period is the period of notice the employee didn’t receive but was entitled to. The statutory entitlement to 6 weeks is longer than the contractual entitlement so the post-employment notice period is 42 days.

P = 7 days

P is the number of calendar days in the employee’s last pay period ending before the trigger date (see EIM13886). As no notice is given to trigger date is the date the employment is terminated. The employee is paid weekly...

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