1  Payment made under terms and conditions of employment – unless the payment is listed separately later in this chart

‘Terms or conditions’ means anything governing the employment relationship so, as well as any written contract, verbal terms, Handbooks and Agreements may well be included.

2   Lump sums paid on retirement or death from

• a retirement benefits scheme approved by the Inland Revenue
  or
• a ‘statutory scheme’, for example the Civil Service Pension scheme
  Commutation of pension rights and some other payments
  (see paragraph 150) under these schemes are also included

3   Other lump sums paid on retirement

4   Other lump sums paid on the death of an employee

5   Lump sums to compensate for loss of employment through disability, injury, or ill health which prevents
the employee carrying out the duties of the employment. Where such a payment is over £30,000, you may wish to agree with your Inland Revenue office before you pay the whole amount tax-free

6   Payments for redundancy

• due under statutory redundancy payment rules
  or


• paid from your non-statutory scheme to compensate for
  loss of employment by reason of redundancy.
  
  Redundancy has a special legal meaning. Broadly, there must be a reduced need for employees which causes the termination of the employment.
  
  This would not include, for example, a payment in lieu of
  notice provided for by such a scheme.
  The redundancy may be indirect. For example, an employee
  leaves as a result of a reduced need for employees elsewhere
  in the business.

7   Payments made as damages The termination was a breach of contract. For example,

• you did not give the employee proper notice, and there
  was no entitlement or option to make payment in lieu of
  notice. A payment in lieu then made is damages for
  the breach;
• you agree, or the Courts or an Employment Tribunal rule,
  that the employee was unfairly or wrongly dismissed.
  If you pay something which is due under the terms or
  conditions of employment, it will not be damages. For
  example, you may be ordered, or agree, as part of a
  settlement of damages to pay wages due under such terms.
  In these circumstances that element of the payment must
  be included in gross pay for NICs and PAYE purposes.

8   Payments for the employee giving a restrictive covenant

A restrictive covenant is an undertaking which restricts the
employee’s conduct.

9  Employee’s legal costs

These are costs incurred in bringing a claim to compensation
for loss of employment.

10  Cost of ‘outplacement counselling’

This includes such things as
• a course or advice to assist the employee in finding new
  employment
• a course to help the employee adjust to the termination
  of employment
  
  provided that the counselling
  
• is generally available to employees
  Reimbursed costs and associated travelling expenses are
  treated in the same way.

This covers the payment or reimbursement of retraining
course expenses for an employee who is about to leave, or
who has recently left your employment. The course
must be
• full time, or substantially full time
• last for no more than 1 year, and
• be designed to provide the employee with skills or knowledge
  which will help them to find alternative employment
  (including self employment)
  There are further conditions relating to the time when the
  employee starts the course, and the period for which the
  employee has worked for you. Ask your Inland Revenue office for details.