Benefits given to former employees and retirees

Q: Which set of rules applies to a perk after leaving?

The dividing line is why the perk is being given. SituationRules that tax itWho tells HMRC Perk agreed as part of a redundancy, dismissal or settlement packageSection 401 ITEPA 2003 (termination payments and benefits), with the £30,000 thresholdFormer employer, plus the former employee on a Self Assessment return Perk given on or after retirement because of past serviceEmployer financed retirement benefits scheme (EFRBS) rules, sections 393B and 394 ITEPA 2003The scheme's responsible person, usually the employer, by 7 July after the tax year Loan written off after the person leftBenefits code, which still appliesFormer employer through the normal benefits reporting HMRC's guidance at EIM15042 warns that an "early retirement" is often in fact a dismissal, such as a redundancy, so a payment can fall under section 401 even if a pension starts. Without dismissal, redundancy, severance, resignation or death, HMRC says it is likely to be a retirement.

Q: Who reports what to HMRC, and by when?

Benefits up to the leaving date: reported in the normal way for that tax year. Termination benefits: PAYE74015 says the employer does not operate PAYE on the non cash element, but must make a return under regulation 91 of the PAYE Regulations where a termination package including benefits is estimated to exceed £30,000, by 6 July following the end of the tax year in which the termination takes place. The former employee reports the taxable value on their Self Assessment return (EIM13905). Retiree perks: under EIM15200 the responsible person sends HMRC, by 7 July after the tax year, the recipient's name, address and National Insurance number, the nature of the benefit and its amount. The scheme itself must also be reported by 31 January following the tax year in which the first relevant benefit is provided. Without UK trustees or managers, the responsible person is the employer that set it up (EIM15056).

Q: How does this look in practice?

Illustration only. Jo is made redundant and receives £24,000 cash plus continued use of her company car for six months, with a cash equivalent of £1,800 for that period. The package totals £25,800, inside the £30,000 threshold, so no tax arises on either part and £4,200 of threshold is unused. Her colleague Ray retires at normal retirement age and the company keeps paying his medical premium of £900 a year. That is a relevant benefit under an EFRBS. Ray is taxed on £900 a year, the company reports it by 7 July, and no Class 1A is due.

Once someone has left, the ordinary benefits in kind rules stop applying to anything new they are given, but that does not make perks for former staff tax free. A perk that forms part of a leaving package is taxed under the termination rules in section 401 ITEPA 2003, and a perk given to retirees because of their past service is usually taxed under the employer financed retirement benefits rules, with the employer or scheme reporting it to HMRC.

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Why does the normal benefits in kind charge stop when someone leaves?

The benefits code in Part 3 of ITEPA 2003 charges expenses payments (section 70) and benefits (section 201) provided to a director or employee who holds an employment during the year. HMRC’s Employment Income Manual at EIM20040 draws the consequence: expenses paid and benefits provided after someone has left are not chargeable under the benefits code. There are two exceptions. The waiver or write off of a loan is still taxed under the benefits code, and so is a failure to deduct PAYE from the pay of certain directors. A benefit arranged before leaving but deliberately held back to exploit the wording can also be caught.

Benefits enjoyed up to the leaving date are reported as usual for that year (see benefits in kind and the P11D).

Which set of rules applies to a perk after leaving?

The dividing line is why the perk is being given.

Situation	Rules that tax it	Who tells HMRC
Perk agreed as part of a redundancy, dismissal or settlement package	Section 401 ITEPA 2003 (termination payments and benefits), with the £30,000 threshold	Former employer, plus the former employee on a Self Assessment return
Perk given on or after retirement because of past service	Employer financed retirement benefits scheme (EFRBS) rules, sections 393B and 394 ITEPA 2003	The scheme’s responsible person, usually the employer, by 7 July after the tax year
Loan written off after the person left	Benefits code, which still applies	Former employer through the normal benefits reporting

HMRC’s guidance at EIM15042 warns that an “early retirement” is often in fact a dismissal, such as a redundancy, so a payment can fall under section 401 even if a pension starts. Without dismissal, redundancy, severance, resignation or death, HMRC says it is likely to be a retirement.

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How are perks in a leaving package taxed?

Section 401(3) stops section 401 applying to anything taxable under another provision. A perk that continues after leaving is therefore split: the part enjoyed while still employed stays in the benefits code and the part after the leaving date falls into section 401 (EIM21007 and the worked example at EIM13905).

Non cash benefits are valued at their cash equivalent under section 415. Strictly that is the greater of the section 62 value and the benefits code cash equivalent, but EIM13270 says the section 62 value only needs checking where an asset that has grown in value is transferred. Anything the former employee pays towards the perk is deducted.

Timing follows enjoyment. Under EIM13110 a non cash benefit is received when it is used or enjoyed, so the use of a car is received as soon as the car is available. A perk that runs for two years after leaving is therefore taxed in each tax year it covers. The £30,000 threshold is shared between cash and benefits, and HMRC’s example at EIM13906 shows any unused part of it being carried forward against benefits enjoyed in the following tax year.

Since April 2020 termination awards taxed under section 403 attract employer Class 1A on the amount above £30,000 (EIM13860). NIM13202 separates two cases: an asset kept outright is added to the award for tax and Class 1A, with the threshold set against cash first; a benefit used for a period and then returned is treated as a benefit in kind, with Class 1A accounted for through the P11D(b) for each year it is in use.

How are perks for retirees taxed?

Section 393B defines relevant benefits to include any benefit, including a non cash benefit, provided on retirement or after retirement in connection with past service (EIM15021 and EIM15149). HMRC’s PAYE Manual at PAYE76160 states that an arrangement to provide non cash benefits after retirement in connection with past service is itself an employer financed retirement benefits scheme. Nothing formal is needed: carrying on perks for pensioners is enough. These benefits have been taxable since 6 April 2006 under section 394, subject to a lower limit of £100 described in PAYE76160.

The taxable amount under EIM15120 is the greater of the benefit’s money’s worth and its cash equivalent under the benefits code, applied as if the benefit were received for performing the duties of the employment and reading “employer” as including a former employer. PAYE76160 confirms these benefits do not attract Class 1A contributions. HMRC collects the tax through the pensioner’s tax code or Self Assessment return. Funded schemes and lump sums are covered on the EFRBS page.

Which perks for former employees are not taxed?

Several benefits are excluded benefits, so they are not relevant benefits at all. The list in EIM15021 and PAYE76160 includes:

benefits for ill health or disablement of an employee during service, and benefits for accidental death in service
continued living accommodation where the employment exemption would have applied, subject to the conditions at EIM15022, and related benefits
welfare counselling, and recreational benefits that would have been exempt under section 261 for an employee
an annual party or similar function that would have been exempt under section 264 for an employee
writing of wills where the cash equivalent does not exceed £150 (EIM15029)
equipment for disabled former employees
non cash benefits first provided on retirement before 6 April 1998
trivial benefits that would meet sections 323A and 323B for a current employee (EIM15033), which PAYE76160 describes as costing up to £50 each; for former directors of a close company the £300 annual cap still applies
annual health screening and medical check ups that would have been exempt under section 320B, if the person had at least one during their employment
any other benefit costing up to £100

See the trivial benefits exemption for the conditions.

How are medical cover, cars and discounts treated?

Medical cover

If cover continues for a few months as part of a leaving package, the premiums after the leaving date are taxed under section 401 once the £30,000 threshold is used up. In HMRC’s example at EIM13905 a £35,000 cash payment uses the threshold, so the continued premiums are taxable in full. For retirees, private medical insurance is not on the list of excluded benefits (only screening and check ups are), so premiums paid for a pensioner are a relevant benefit if they exceed the £100 limit. The employment position is covered on private medical insurance as a benefit.

Cars

Continued use of a company car after leaving is valued with the normal car benefit calculation, time apportioned (EIM13906). A car handed over outright is valued as an asset transfer; NIM13202 gives the example of a £15,000 car kept as part of a severance package, added to the award for tax and Class 1A. A car given to a retiree under a retirement arrangement falls into the EFRBS rules and is valued under EIM15120.

Discounts and other ongoing perks

A staff discount or similar perk kept by pensioners is a relevant benefit unless it is excluded, for example because it is trivial or costs £100 or less.

Who reports what to HMRC, and by when?

Benefits up to the leaving date: reported in the normal way for that tax year.
Termination benefits: PAYE74015 says the employer does not operate PAYE on the non cash element, but must make a return under regulation 91 of the PAYE Regulations where a termination package including benefits is estimated to exceed £30,000, by 6 July following the end of the tax year in which the termination takes place. The former employee reports the taxable value on their Self Assessment return (EIM13905).
Retiree perks: under EIM15200 the responsible person sends HMRC, by 7 July after the tax year, the recipient’s name, address and National Insurance number, the nature of the benefit and its amount. The scheme itself must also be reported by 31 January following the tax year in which the first relevant benefit is provided. Without UK trustees or managers, the responsible person is the employer that set it up (EIM15056).

How does this look in practice?

Illustration only. Jo is made redundant and receives £24,000 cash plus continued use of her company car for six months, with a cash equivalent of £1,800 for that period. The package totals £25,800, inside the £30,000 threshold, so no tax arises on either part and £4,200 of threshold is unused. Her colleague Ray retires at normal retirement age and the company keeps paying his medical premium of £900 a year. That is a relevant benefit under an EFRBS. Ray is taxed on £900 a year, the company reports it by 7 July, and no Class 1A is due.

What mistakes come up most often?

Not realising that providing perks to pensioners creates an EFRBS with a start up report and an annual 7 July report.
Treating a redundancy described as early retirement as a retirement benefit.
Forgetting that benefits as well as cash use up the £30,000 threshold.
Overlooking that a loan written off after leaving is still taxed under the benefits code, and that termination awards above £30,000 carry Class 1A (see Class 1A National Insurance and tax on termination payments).

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.