§ Paddy AshdownTo ask the Chancellor of the Exchequer for what reasons money received on redundancy as pay in lieu of notice and holiday pay is treated for tax purposes as income for the tax year in which it is paid, in circumstances where it relates to a period of time within the following tax year; and if he will make a statement. [128182]
§ Dawn Primarolo[holding answer 5 July 2000]: The earnings of all employees and directors, including money received on redundancy as pay in lieu of notice and holiday pay, are taxed in the year in which they are received instead of the year for which they were earned. This way of taxing earnings was introduced in the 1989 Budget in order to simplify the method of assessment. There are no current plans to change this treatment.
Tax treatment of redundancy paymentsPayments made solely to compensate for an individual being made redundant are taxable above a £30,000 exemption limit.Tax treatment of payments in lieu of notice and holiday payPayments in lieu of notice are taxable in full if they are provided for in the contract of employment or if the employer customarily pays them. Other payments in lieu of notice are treated in the same way as redundancy payments, i.e. taxable above a £30,000 exemption limit. Holiday pay owed is taxable in full.All of the above payments are taxed in the year in which they are received. Those payments which are taxable in full have been taxed in this way since 1989 and those payments which are taxable above a £30,000 exemption limit—i.e. redundancy payments and some payments in lieu of notice—have been taxed in this way since 1998.