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TaxRobin
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Experience:  International tax
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I was made redundant 18 months ago, received £30k tax free

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I was made redundant 18 months ago, received £30k tax free with the rest of my agreed severance paid to my pension (again as agreed). It transpired that I found inadvertantly that due to another anomolie I might have received a bigger payout but due to the company rules on my age at severance I missed out on almost £50k because I was 4 months to old.
Fortunately I was a member of the union and with their help and an assigned solicitor the company has agreed to pay an addition £29k on the basis I agree to signing a non disclosure agreement stating the company has no liability.
While I am happy with the outcome and proposed settlement, I was advised initially that it would be Tax Free, however the employer are proposing to pay the amount after tax, which will probably be at 40% due to my current pension income.
My issue, I was initially advise the payment is basically Ex-gratia and as a result Tax free, but the solicitors acting on my behalf are now stating it is up to me to make a case to HMRC despite advising it would be paid tax free, I am now confused and unsure to, my next move, especially as my Tax knowledge is very limited and my ability ( if I was taxed on the sum) to reclaim extremely limited.
Can you provide any guidance on whether the payment should be tax free and if so what my next steps ought to be, if you believe I need to reclaim if taxed, how would I go about it,, sorry for all the questions,, I hope my story makes sense.
Kind regards Jim
Submitted: 2 years ago.
Category: Tax
Expert:  TaxRobin replied 2 years ago.
Hello,
While it is true that 'redundancy payments' (the component paid as compensation for redundancy) are not liable for NICs and in the majority of cases are not taxable up to £30,000 you have used that portion already.
Before the £30,000 threshold (see EIM13505) is applied, it is necessary to add together all the payments and benefits within Section 401 ITEPA 2003 that are made to, or in respect of, the same person in connection with:

the same office or employment and
different offices or employments with the same employer and
different offices or employments with associated employers

The threshold is then applied to the total. This ensures that only one £30,000 threshold is applied for that total.

Unfortunately this additional amount is still under the first payment you received and the additional amount is not a separate calculation.
Customer: replied 2 years ago.

Thank you, ***** ***** I had received the amount on my original redundancy payment I would have added to my pension (tax free). I have been advised I can no longer do this. My assumption, then it is not then the same payment and as such should be treated ex gratia and indeed tax free. Again , I stress my ignorance of the subject, however this is what I was orignally advised by my solicitors?

Expert:  TaxRobin replied 2 years ago.
You are correct in that you would not be allowed to add to teh pension at this time.
The term ‘ex-gratia’ should only be used in relation to a payment the employer makes when under no legal or contractual obligation to do so.
I cannot agree that the additional payments are under a separate redundancy payment.
Customer: replied 2 years ago.

Thank you once more, one last question, the agreement I have been asked to sign is a Settlement reached as a result of conciliation action, I would have been unlikely to agree (if not firstly advised it would be Tax free), is there any scenario where I should reveive tax free because of what is definetly Age Discrimination, agreed by all parties as this was the reason the Union, Solicitors took the case on and the bank accepted my grievance. Sorry for the continued questions, I am just a bit annoyed with the advice from my solicitors, your support has been very helpful.

Expert:  TaxRobin replied 2 years ago.
Compensation attributable to discrimination, which is not related to the dismissal, would be tax free.
Any additional amount you received that was directly related to redundancy is taxable.
I was under the impression that your settlement was due to a shortage on your redundancy payment. If that was the case then you would be taxed on the amount.
If this settlement is a payment because you suffered Age Discrimination then that is not taxable.
Any portion of the payment for Age Discrimination would be taxable.
Customer: replied 2 years ago.

Thank you, ***** ***** I did not make the position clear. When I received settlement I was advised if I had been 4 months younger I would have received almost £50k more. As a result I was advised to lodge a grievance under the heading of age discrimination. The result was agreement signed under this grievance. However if what you say is factual, I am not clear as to why the respondant have


stated the settlement will be subject to the deduction of income tax, apparently stating they do not agree with the solicitors that it should be paid with out tax despite the case being age discrimination. My concern is that I appear to be being left to accept with out knowledge or expert advise on the view of HMRC. I really appreciate your responses, however I am still slightly concerned, your thoughts that it should be tax free appears to agree with my solicitors first advise, but I am left having to take the payment after tax and then (I think) slug it out with HMRC while not having been directly involved with discussions on the agreement until the agreement advise which suggested it will be taxed by the bank. Really sorry for the log winded reply, if there is you have any other thoughts, suggestions, I would really appreciate, you have been helpful and confirmed my resolve to fight on,, but any other pointers would be great.


 


 

Expert:  TaxRobin replied 2 years ago.
The issue rests on what the true reason for the payment was to you.
If your lodgment of a grievance under the heading of age discrimination was paid because the company had discriminated against you based on age that is different than the company needing to recalculate a mistake.
If their scheme was discriminating based on age then the payment may be seen as not part of the redundancy.
I am afraid the wording of the settlement is crucial and that alone would be used by HMRC to determine if the character of the payment.
Customer: replied 2 years ago.

Thank you, ***** ***** accepting I will endevour to receive confimation of the wording. As far as I am aware, the bank have agreed to settle my grievance which was solely submitted as age discrimination and has not changed at any point as far as I have been led to believe. The banks offer at just a few hundred pounds short of £30k suggests they to are aware of the tax situation, so assuming the wording states Age Discrimination, hopefully it wiil result in Tax free or my ability to reclaim.

Expert:  TaxRobin replied 2 years ago.
I certainly hope so.
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