Taxation of non-cash employment termination payments

Produced by Tolley in association with Sue El Hachmi of Osborne Clarke LLP

Employment Tax

Guidance

Termination packages often include both cash and non-cash payments. See the Taxation of cash employment termination payments guidance note for information on the taxation of cash payments.

Subject to reliefs and exemptions, non-cash benefits provided on or after termination are taxed under ITEPA 2003, s 401. Any taxable benefits arising before termination are taxed under the benefits code.

It is common for non-cash benefits provided to employees during employment to continue beyond the date of termination. Benefits that straddle the termination are apportioned on a time basis, those falling after termination being taxed under ITEPA 2003, s 401 and those before taxed under the benefits code.

Non-cash benefits are valued on the cash equivalent of the benefit.

The cash equivalent is the greater of:

•
the amount that would be chargeable under ITEPA 2003, s 62 if the benefit were earnings. The amount is based on ‘money’s worth’ and will be its direct monetary value or the value it is capable of being turned into ― the second-hand value.
•
the cash equivalent

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Sue El Hachmi

Senior Associate at Osborne Clarke

Sue advises on the design and implementation of employee incentive arrangements for private and public companies, including all types of tax-advantaged plans and bespoke arrangements for senior executives and management.Sue also advises on the incentive-related aspects of corporate transactions and has experience of private equity transactions and public company takeovers, flotations and demergers.Sue is a member of the Share Plan Lawyers Group and a member of the UK BioIndustry Association Finance and Tax Advisory Committee.

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Taxation of non-cash employment termination payments