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At the beginning of July this year I parted company with my

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At the beginning of July this year I parted company with my employer – a compromise agreement was produced which paid me around £18,000 in compensation, as well as pay in lieu of notice.
I also negotiated for my employer to gift me my company car: a 2012 Toyota Avensis – with a list price of £23,545 which had, in previous years, given rise to a taxable benefit of £4,473.
The estimated market value of the vehicle indicated in the compromise agreement –a copy of which I supplied to HMRC is £11,750.
My question is what, if any, tax liability results from this gift of the car as part of my settlement? Can it be considered part of the payments covered by the £30k tax free rules?
Thanks, John
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi John
Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.
I am afraid the car cannot fall within the £30,000 tax free consideration as
1) its a tangible asset and
2) its by reason of your employment that this arose
S it will remain as treated as a taxable element so its value at the time of being given this will be added to your other taxable income (so pay to date of leaving and any pay in lieu, and any element of the £18000 that is not deemed to be tax free - as its not a given this lump sum is fully tax free- so HMRC will have to review the conditions under which this was paid)
Thanks
Sam
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
It is just possible that the car could be included within the 30K limit especially as you negotiated it with your employer as part of the redundancy package. HMRC advice on redundancy states:
'Items other than money
Anything else you receive which is not money is converted into a cash value for tax and NICs purposes. If these items were given to compensate for your redundancy, the cash value counts toward the £30,000 tax–free limit.
Contact your employer or HMRC if you want more information about tax and NICs on your redundancy payment or the payments included in your redundancy package.'
It will only cost you a 50p stamp to inquire of your tax office and could be money well spent.
Expert:  Sam replied 2 years ago.
Hi
Just an afterthought - Keith is right to an extent BUT has missed the main point - whether any of this is treated as a true tax free payment that falls within the £30K threshold, which HMRC would need to establish.
And any gift from employment as Keith knows (and that is how you described it) is taxable by reason of your employment - so would not be included within any allowable tax free amount.
I am sorry for the confusion
Thanks
Sam
Customer: replied 2 years ago.

Hi Sam,

Thanks for your replies.

It seems that you're saying that the car represents a taxable item and that Keith is saying is may not be so.

Just to be clear, I negotiated for the car to be given to me as part of my compensation package - I had use of it whilst I was employed but it was transferred to me only upon leaving the company.

Perhaps I've not fully understood what you're saying, but looking at the HMRC redundancy sheet it seems to me that I could argue that it should fall inside the £30k threshold? Best regards, John

Expert:  bigduckontax replied 2 years ago.
That was the possible route I was suggesting. You should put the matter before your tax office or enter it as a comment in your tax return as deadlines are getting close for a paper return.
Expert:  Sam replied 2 years ago.
Hi John
Thanks for your response
First please note that there is no automatic £30,000 tax free exemption, this allows a payment made for redundancy purposes, or break of contract - but its important how any agreement is worded, or what the elements of the payments were actually for.
For example, Pay in lieu is always taxable, as this is just recognition that you were unable to work your notice period, as is holiday pay, bonuses, owed salary.
Keith was right in stating that Items other than money can fall into being considered within this £30,000 exemption, However whether it does is another matter.
As the per the EM (Employment Income manual) HMRCs view on this is as follows
Compromise agreements
When an employment comes to an end, an employee often has various potential claims against the employer. For example:
•salary or wages may not have been paid in full (particularly a bonus)
•there may be a contractual right to a payments in lieu of notice (PILONs), see EIM12976
•the employee may think that the employer has failed to put into effect statutory rights under the Employment Rights Act 1996 or other employment legislation
•the employee may want compensation for an employer's breach of contractual terms, for example where the employer has given less notice than the contract requires (even though the minimum statutory notice required under the Employment Rights Act 1996 has been given)
•the employee may believe that the dismissal involves unlawful discrimination on grounds of sex, race, religion or disability.
All of these matters are often dealt with by a single agreement made at termination, usually labelled a compromise agreement. The effect of such an agreement is to ensure that claims cannot later be pursued before Tribunals or Courts.
So there is no mention of redundancy within your original question, yet you say you have made reference to the Redundancy helpsheet - were you in fact made redundant, and was the car not gifted as you advised?
Can you advise the exact wording of the payment (s) made with their amounts and the car position within the compromise agreement
Thanks
Sam
Customer: replied 2 years ago.

Hi Sam,

Sorry, I didn't appreciate the level of background info you might need.

My company and I agreed to a settlement after I brought a grievance claim against them. They were concerned about a possible claim for constructive dismissal. The compromise agreement refers to "the termination of employment by reason of mutual consent"

Section of compromise agreement pasted below ( this is starts as section 2 in original document)

1 Termination of employment

1.1 Your employment with the Employer and (except as provided in clause 8) the Employment Contract will terminate by reason of mutual consent on 4 July 2014 (‘Termination Date').

1.2 On the Termination Date you will cease to be entitled to any remuneration or benefits except as set out in this Agreement.

2 Payments and compensation

2.1 You will be paid your accrued salary and contractual benefits (including any relevant contributions to your personal pension scheme) (less PAYE deductions) for the period up to and including the Termination Date via payroll in the normal way after deduction of any sum due from you to the Employer or any Group Company.

2.2 Subject to and conditional upon the terms set out in this Agreement, the Employer will, without admission of liability, pay to you, within 21 days of the later of (a) the Termination Date, (b) the date of receipt by the Employer of this Agreement signed by you, and (c) receipt by the Employer of the certificate in the form set out in Schedule 1 signed by the Adviser:

2.2.1 £7,261.02 (less PAYE deductions) as payment of salary(1st July – 4th July 2014) and remaining contractual notice (7 weeks) and contractual benefits in lieu of your notice period;

2.2.2 £ 2,729.74 (less PAYE deductions) in lieu of accrued but untaken holiday entitlement;

2.2.3 £18,232.14 as compensation for the termination of your employment (‘Compensation Payment’).

Your P45 will be forwarded to you in due course.

2.3 The Employer and you understand that sections 401 to 403 Income Tax (Earnings and Pensions) Act 2003 apply so that the Compensation Payment can be paid without deductions for tax or employees’ national insurance contributions. You will be responsible for paying any further or other tax and/or employees’ national Insurance contributions that are payable.

3 Expenses

3.1 You will submit your final expenses claim, together with all required supporting invoices, receipts and vouchers, to the Employer within seven days after the Termination Date and all expenses wholly, properly and exclusively incurred by you in connection with your employment by the Employer, up to and including the Termination Date, will be reimbursed subject to and in accordance with the Employer's policy on expenses.

4 Company car

4.1 Ownership of your company car Toyota Avensis (registration number FM12 xxx) (‘Car’) will be transferred to you free of charge on or before 4 July 2014. You will be responsible for insuring and maintaining the Car from that date. The estimated market value for the purpose of this transfer as at 4 July 2014 is £11,750. The Employer makes no representation and gives no warranty as to the condition, state or roadworthiness of the Car.

Expert:  bigduckontax replied 2 years ago.
Post to clear my question list.
Expert:  Sam replied 2 years ago.
Hi
I do apologise for my late response, the last message from the other expert cleared the question entirely from the question list - I assure you this should not happen again.
I agree that the compensation of £18.232.14 can be paid free of tax, and the employer clearly has looked into the payment position already as they details its tax free entitlement at item 2.3
However item 4.1 does not include this as part of the compensation payment and I should also point out that it was to be transferred to you, on or before the termination date, which means, in my expert opinion that it will be treated as liable to tax, by reason of employment and not as consideration within the £30,000 tax free position.
And this market value should be entered on a P11d by the employer for HMRC as a taxable position.
So my intial response stands as correct.
Thanks
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13810
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 2 years ago.

Many thanks Sam!

It was worth asking the question.

Regards, John

Expert:  Sam replied 2 years ago.
Hi
You are very welcome John and thanks for the accept/rating
Have a great weekend
Sam

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