Termination payments

The Practice Notes in this subtopic consider the tax treatment of payments (and the provision of other benefits) made in connection with the termination of employment. Tax treatment in this context means the income tax and National Insurance contributions (NICs) treatment for the employee or director, as well as the PAYE and NICs obligations for the employing company and the corporation tax deductibility of the particular payment.

Depending on the circumstances, termination payments (or benefits) may be taxable in full, in part, or in limited circumstances may be fully exempt.

The first question is whether a payment made (or other benefit provided) on or in connection with termination of an employment is taxable as earnings or emoluments from the employment under the general charging provision (section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)). There is a significant body of case law on what constitutes earnings for these purposes. For details of the relevant case law and how it applies in the context of termination payments, see Practice Notes: Termination payments and tax and Termination payments taxed as earnings,

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