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bigduckontax
bigduckontax, Accountant
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Is it necessary in the UK to enter an untaxed ex-gratia payment

Customer Question

Is it necessary in the UK to enter an untaxed ex-gratia payment (£5,000) on a payslip and submit details to HMRC? In this case the employee left end of December, but this final ex-gratia payment was made in February.
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

The employee must be notified of the payment, what it is for and any tax or NI deducted. A form of pay slip, obtainable at any good stationers, is the obvious way to do this. I assume that the ex-gratia payment was in respect of a redundancy. As you are probably aware the first 30K on any such moneys is not taxable in the recipient's hands nor the subject of NI, but the employee needs to have the notification in writing in the event of a later challenge by their tax office. Anyway, it is good practice!

As for reporting such a payment to HMRC Thomson Reuters Legal Solution [edited] gives the following advice:

'Reporting to HMRC.

No report to HMRC is required if there is a cash-only settlement and no tax is deducted. If tax is deducted, the only obligation is to include the taxable payment in gross pay for PAYE purposes (which will then be reported to HMRC under real time information).'

I do hope I have solved your problem for you to your satisfaction.
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Customer: replied 3 years ago.

Thanks Keith. The details were all in a written settlement agreement with the employee, so I believe we are covered on that. And I am glad that you have confirmed my recollection that no reporting to HMRC was necessary,

Expert:  bigduckontax replied 3 years ago.
Delighted to be of assistance.

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Expert:  bigduckontax replied 3 years ago.
Thank you for your support.

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