Termination payments

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Termination payments
  • Statutory deduction for termination payments
  • Deduction under general principles
  • Termination payments on cessation of trade
  • Restrictive covenants
  • Counselling, outplacement and retraining expenses
  • Other tax implications of termination payments

This guidance note explains the corporation tax treatment of payments made to staff on cessation of their employment contract.

Statutory deduction for termination payments

Redundancy payments or approved contractual payments are specifically allowable where they are made to employees in respect of their employment wholly or partly in the employer's trade. Redundancy payment includes payments made under either:

  • Employment Rights Act 1996 (subscription sensitive)
  • Employment Rights (Northern Ireland) Order 1996

CTA 2009, ss 76, 77

'Approved contractual payment' means an amount which the employer is contractually obliged to pay to the employee on termination of their employment contract in respect of which order is in force under Employment Rights Act 1996, s 157 (subscription sensitive) or Employment Rights (Northern Ireland) Order 1996, Art 192.

Employment partly in another capacity

The extent to which payments are allowable under the specific provisions in CTA 2009, ss 76 - 81 depends on whether the payment relates fully to the employee's employment in the trade. Where the employee is employed partly by another capacity, the amount of the payment must be apportioned on a just and reasonable basis and only the portion relating to the trade is an allowable deduction from trading profits.

CTA 2009, s 78

More on Trading company computations: