Income Tax (Earnings and Pensions) Act 2003 section 402B

Termination awards not benefiting from threshold to be treated as earnings

Section 402B provides that certain termination awards which do not qualify for the £30,000 tax-free threshold are instead treated as taxable earnings from the employment.

• Termination awards caught by this section are treated as earnings of the employee or former employee from the employment
• These amounts are classified as general earnings for income tax purposes
• The normal rules for determining when termination benefits are received do not apply to awards covered by this section
• The practical effect is that these awards are taxed through PAYE as employment income rather than under the separate termination payments regime