Income Tax (Trading and Other Income) Act 2005 section 79

Additional payments

Section 79 deals with the tax deductibility of voluntary additional payments made by an employer to employees when the employer permanently ceases a trade or part of a trade.

• When an employer permanently stops trading (in whole or in part) and makes a voluntary payment on top of the statutory redundancy payment or approved contractual equivalent, this section may allow a tax deduction for that additional payment.
• The deduction is only available where the sole reason the additional payment would otherwise be disallowed is because the trade has ceased — if it would have been deductible had the trade continued, the deduction is permitted.
• The maximum deduction is capped at three times the amount of the redundancy payment (or the equivalent amount where an approved contractual payment is made instead).
• If the additional payment is made after the trade has ceased, it is treated as made on the last day the trade was carried on, and the deduction is given in the accounting period in which the payment is made or deemed to be made.