109 Payments in respect of redundancy

Summary

Redundancy payments (including lump sums, weekly payments and resettlement allowance) which employers are liable to pay to redundant employees under the Redundancy Payments Act, 1967 are allowable deductions in computing the profits of the employer for tax purposes. Such sums are exempt from income tax in the hands of the employees by virtue of section 203.

Redundancy payments are, in general, an allowable business expense (for instance, where the employer’s trade is continuing). However, this section provides that statutory redundancy payments, if not otherwise allowable, qualify for relief in computing business profits for tax purposes to the extent they are borne by the business and not by the Redundancy Fund established under the Redundancy Payments Act, 1967.

Details

Definitions

(1) The terms “lump sum” and “rebate” used in the section have the same meanings as in the Redundancy Payments Act, 1967.

Expenses of a trade/profession

(2) A deduction is given in computing profits of a trade or profession for redundancy lump sums paid to employees where a deduction would not otherwise be allowed. The deduction is, in effect, limited to the amount of the lump sum ultimately borne by the employer. This is achieved by treating any rebate receivable from the Redundancy Fund as if it were a trading receipt. Where a lump sum is paid by an employer after ceasing to trade, the net amount (after deducting any rebate) is regarded as having been paid on the last day of trading.

Management expenses

(3) A similar deduction is available in the case of an employer entitled to relief in respect of management expenses under section 83 or 707. Such employers include certain assurance companies, investment companies, savings banks and industrial and provident societies.

Case V expenses

(4) A similar deduction is available where a lump sum is paid by an employer in respect of employment in maintaining or managing premises where the expenses of managing and maintaining the premises were deductible under section 97.

Prevention of double relief

(5) An employer is not entitled to relief more than once in respect of the same payment. This would arise where, for example, an employer had 2 trades and an employee was performing duties in each of the trades. An apportionment of the net amount of the redundancy payment is made where an employee is employed in different capacities so that different parts of the employee’s remuneration is treated for tax purposes in different ways. Whether any part of the net payment as so apportioned is allowable depends on the tax provisions applicable to the capacity to which it relates. For example, where an employment includes duties in a trade such as retail selling and also domestic duties in the employer’s household, the part of the net lump sum which is apportioned to the domestic employment is not an allowable deduction in the computation of the trading profits of the retail trade.

Payment of lump sums by Minister

(6) The Minister for Enterprise, Trade and Employment may pay the whole or part of a lump sum for which the employer is liable but has neglected or refused to pay. In such a case the employer is not allowed a deduction but, if the Minister is subsequently reimbursed by the employer, the lump sum is treated as having been paid by the employer thus allowing relief under this section to be given.

Relevant Date: Finance Act 2019