In this week’s Q&A, Croner Taxwise payroll adviser Sue Walker, considers the tax implications for a retirement bonus and any tax-free options
If an employer wishes to pay a retirement bonus tax free then, unfortunately, they cannot as any cash amount payable to a retiree would be treated as earnings within section 62 ITEPA 2003 and therefore would be subject to PAYE and National Insurance, and processed through the payroll in usual way.
This is because it is their choice to retire, and no tax-free provision is in place to pay them a retirement bonus tax free as you would pay a tax-free redundancy amount of £30,000.
Another option for a retiree reward would be for the employer to buy the employee a gift upon retirement. S323 ITEPA 2003 sets out the requirements for a retiree to receive such an award tax free from their employer.
