If you need to make staff redundant and are unclear that about the tax treatment of any aspect of their termination payments, it is worth being aware that HMRC have recently changed their working practices. If you are uncertain about the correct tax treatment of termination payments, HMRC will now only issue guidance via the Non-statutory Clearance Service.
HMRC’s previous guidance committed them to giving a binding answer if employers made enquiries on termination cases involving:
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the disability and injury compensation exception
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the foreign service exception
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how the £30,000 threshold applies to payments made by a third party and by the employer
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non-cash provisions
As part of a process of aligning its approach on the provision of ‘advance assurance’ for certain queries relating to termination payments, HMRC will now no longer give a binding answer on these cases outside of the Non-Statutory Clearance service.
The Non-Statutory Clearance service is only available to resolve what HMRC consider to be genuine points of uncertainty on the tax treatment of a termination payment. Before an employer seeks clearance via this route they should ensure that they have:
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fully read the relevant guidance or contacted the relevant helpline;
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not been able to find the information they need; and
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be genuinely uncertain about how the legislation applies to their circumstances.
Previously, HMRC guidance stated they would assist taxpayers needing an explanation of how certain Statements of Practice and Extra Statutory Concessions operated within the context of a termination case. These are:
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SP2/81: contributions made to a pension scheme as part of termination arrangements
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SP10/81: the meaning of disability
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SP13/91: voluntary payments on retirement made before 6 April 2006
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SP1/94: clearance procedure for redundancy schemes
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ESC A10: lump sums from overseas pension schemes
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ESC A81: legal expenses in termination settlements
Queries on these will now also only be dealt with through the Non-Statutory Clearance Service.
HMRC’s current position on handling termination payment enquiries can be found at EIM12820 and further guidance on the Income Tax and National Insurance treatment of a termination payment can be found in HMRC’s manuals at EIM12800.
This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.
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