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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5115
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I am a sole trader and about to cease my business due to

Customer Question

Hi i am a sole trader and about to cease my business due to poor performance. I have one employee whose contract stipulates a redundancy payment of less than 30k if redundancy occurs due to business being no longer active. My question is that if any such payment I make is it ok to put it as business expenses, do I have make national insurance contributions or tax, and does the employee have to pay tax or declare it on their self assessment. Thanks
Submitted: 2 years ago.
Category: Tax
Expert: replied 2 years ago.
Thank you for your question.Statutory redundancy payments are allowable as business expense for tax purposes.There is no tax and national insurance payable on payments up to £30,000 as a qualifying termination payment.The employee would not pay any tax on this amount and it is declared on self assessment tax return supplementary pages SA101 under section "Share schemes and employment lump sums, compensation and deductions .." on Page Ai 2.More information on termination payments can be found in HMRC manual EIM 13760 here General information on Redundancy can be found here I hope this is helpful and answers your question.If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.
Customer: replied 2 years ago.
Thank you, ***** ***** amount is around 25k it will not be statutory but contractual redundancy. The employee was on an annual salary of 10k. Would this cause any alarm bells to the hmrc for me or the employee
Expert: replied 2 years ago.
Thank you for your reply. There is some useful information covered in HMRC manual EIM13765 - payments made under contractual terms. In my view this addresses your concerns.If the contractual terms specify redundancy, then for the avoidance of doubt it may be accepted that the intention is to pay compensation for loss of employment by reason of redundancy. For example, if the contract says that a payment is to be made on termination "for any reason(including redundancy)" then it may be interpreted as providing such compensation (provided of course that there is in fact a redundancy within EIM13800). This only applies to compensation for loss of employment. I hope this is helpful and answers your question.