Corporation Tax Act 2009 section 1242

Additional payments

Section 1242 allows a tax deduction for additional payments made to employees on top of redundancy payments when a company's investment business (or part of it) permanently ceases.

• When a business permanently ceases, an employer may make an additional payment to an employee over and above the statutory redundancy payment or approved contractual payment
• The additional payment qualifies as a deductible expense of management even though the business has ceased, provided the only reason it would not otherwise qualify is the cessation itself
• The deductible amount is capped at three times the redundancy payment (or three times the amount that would have been due as a redundancy payment if an approved contractual payment was made instead)
• If the additional payment falls into an accounting period after the business has ceased, it is treated as belonging to the last accounting period in which the business was still operating