Income Tax (Earnings and Pensions) Act 2003 section 409

Exception for payments and benefits in respect of certain legal expenses etc. and indemnity insurance

Section 409 provides an exception from the termination payments tax charge for payments or benefits that cover certain work-related legal costs, liabilities, or indemnity insurance arising after employment has ended.

• Cash or non-cash benefits provided to meet "deductible amounts" — costs that would have qualified as allowable employment expenses — are excluded from the termination payments tax charge
• The amount must be paid either by the individual or by the employer (or former employer) on the individual's behalf
• The expense must be one that would have been deductible from earnings under the employee expenses rules (section 346) had the individual still been in the employment at the time the amount was paid
• The payment must fall within the "run-off period", which starts on the day employment ended and runs until the last day of the sixth tax year following the tax year in which that date falls