A partner of your accountancy firm has requested you to prepare detailed notes on the impact of
Question:
A partner of your accountancy firm has requested you to prepare detailed notes on the impact of redundancy pay. During this brief meeting with you, the partner said the following, “When the employment of an employee ends prematurely (i.e. before reaching the retirement age or by resignation of the employee), it is called termination of the employment. Ordinarily this type of termination is initiated by the employer, therefore, breaching the employment contract between themselves and the employee. As a result, employers usually offer the employee some benefits at the time of termination to settle the breach of employment contract.”
The partner required you prepare a note that discusses the taxation of various benefits provided to the employees when their employment contract is terminated. Specifically, the following benefits must be separately discussed among any other benefits that you may come across in your research.
- Gardening leave
- Payment for training and skill development of employee
- Past due salary & bonus
- Pay in lieu of unutilised holidays
- Payment in lieu of notice (PILON)
- Statutory redundancy pay up to £30,000
- Statutory redundancy pay above £30,000T
The discussion should also include how to determine whether benefits are being paid as ‘services rendered under employment’ or ‘as compensation for breach of the employment contract’.
References to the relevant sections of the legislation (section 62 & sections 401-416 ITEPA 2003) will enable you to secure higher marks.
REQUIRED:
Present your detailed notes in a report format.
Your summary should be detailed enough to be a basis for the partner to explain the matter to his clients. It may contain examples if that will improve the clarity of your report
Managerial Accounting
ISBN: 978-0078025518
2nd edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips