Sadly, for whatever reason, it is sometimes necessary to terminate an employee's employment and in the current economic climate redundancy is a very real issue for many employers to have to deal with.

The perceived wisdom is that an employer can pay £30,000 tax free whatever the circumstances or terms of a contract. This however  is not necessarily the case and can store up problems down the line should HMRC undertake an Employer Compliance Review, as Redundancy / Termination payments tend to be rich pickings for HMRC and therefore can be very costly, with Penalties, for the employer if they get it wrong.

The entitlement to the £30,000 exemption largely depends on what is within the Contract of Employment and what that provides for, and whether payment in lieu of notice is required and actually given.

It is obviously important the £30,000 exemption is fully utilised whenever possible and therefore careful planning is required. Issues such as the continued use of company cars, continued provision of private medical benefits and other Benefits in Kind complicate issues and again must be correctly dealt with to ensure the employee gets the full benefit of the redundancy package and the employer protects itself from future HMRC visits.

For more information and guidance please contact us

Written by Alison Clynes
Published on March 4, 2009