§ Mr. Dalyellasked the Chancellor of the Exchequer if he will make a further statement about the treatment for tax purposes of payments under the Redundancy Payments Act 1965.
§ Mr. CallaghanAs I announced on 14th July last, I propose to include in next year's Finance Bill a provision to exclude redundancy payments made under the Redundancy Payments Act from the ordinary charge to Income Tax under Schedule E.
Section 11 of the Redundancy Payments Act envisages that in certain circumstances, subject to the approval of my right hon. Friend the Minister of Labour, redundancy payments under an approved scheme may be substituted for those otherwise due under the Act. The exemption from ordinary Schedule E tax will also apply to payments made under approved schemes which would otherwise be taxable, up to the amounts which would have been payable if the Act had applied. In calculating the amounts to be exempted, however, the rules of the approved scheme for reckoning continuous service will be followed if they differ from rules contained in the Act.
13WPayments which are exempted from the ordinary Schedule E charge will however be taken into account in calculating any liability under Sections 37 and 38, Finance Act 1960—the "golden handshake" provisions for terminal payments totalling more than £5,000.
I have also decided to include a provision in next year's Bill to ensure that employers carrying on a trade or profession or entitled to relief for management expenses will be entitled to relief for Income Tax and Corporation Tax purposes. for payments which they are obliged to make to business employees when the Redundancy Payments Act comes into operation, to the extent that such payments are not recoverable from the Redundancy Fund. Where a business is continuing such relief will usually be available under existing law; but in cases where, for example, a business comes to an end the matter is not so clear. The new provision without restricting any deduction already due, will put the title to relief beyond doubt. In the case of schemes approved under Section 11 of the Redundancy Payments Act I envisage that the outlay to which the new provision is to apply will not exceed the difference between the amount recoverable from the Redundancy Fund and the amount which the employer would have been liable to pay if the Act itself had applied. But again in computing these amounts the rules of the approved scheme relating to reckonable service will be followed if they differ from the rules laid down in the Act. In any case where the payment under the approved scheme is less than the redundancy payment which would have been due if the Act itself had applied, the outlay covered by the new provision will be the amount by which the approved scheme payment exceeds the amount recoverable from the Redundancy Fund.
These provisions will be framed so as to cover all qualifying payments made after the provisions of the Redundancy Payments Act come into force on 6th December.