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General employment termination matters

There are various ways in which an employment contract may be terminated in law, either by one or other of the parties or by mutual consent. Certain of these eventualities can be provided for in the contract itself, others result from the actions of the parties to the contract. In any termination situation, there will be associated income tax and Class 1 contributions implications and there may be other consequences. One instance is that resignation by the employee usually results in loss of entitlement to contributory state benefits for a period, as it is considered that the individual has effectively caused that unemployment. A similar position may result in the case of dismissal for gross misconduct.

A fuller analysis of the tax treatment of payments on termination of employment is provided in Division E4.8. However, in summary, it is essential to identify the separate elements of the termination package, and then apply the different tax and NIC rules appropriate