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Payments and benefits on termination—overview

E4.801 Termination payments—overview

This Division is concerned primarily with the tax and NIC treatment of lump sum payments and other benefits received by an employee on or in relation to termination of his employment, whether by dismissal or redundancy. As will be seen below, some payments and benefits of this kind are subject to tax and NIC in full, while others are exempt from tax and NIC up to an aggregate value of £30,000. Some payments may even be wholly exempt from tax and NIC, such as a termination payment made on the death of an employee, but these are few and far between. This is an area in which HMRC takes a close interest. In all cases it is essential for employers, employees, and their advisers, to consider carefully how much tax and NIC are due, and how to meet compliance obligations in relation to withholding and reporting under the PAYE system¹.

An employment termination payment must be divided