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bigduckontax, Accountant
Category: Tax
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I have a specific question regarding foreign service tax credit

Customer Question

I have a specific question regarding foreign service tax credit on a large lump sum redundancy payment I am due to receive. I was recently made redundant after working with a company years, 15 of them overseas (including 10 in the last 20 years). The company's accountant made a calculation of my tax liability using an incorrect service record from HR that had me working overseas years, by misapplying 5 of my UK years to a foreign posting. I need to get a handle on whether the difference is significant i.e. would correcting the record take me over any exemption threshold.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
, I'm Keith and happy to help you with your question. I am assuming that you have finally got agreement between the accountant and the HR department correct purposes.
Your situation is fiendishly complicated by your overseas service. The Telegraph summarises the position as follows:
'When it comes to taxation on redundancy payments, as long as the job was non-contractual and is a genuine redundancy payment relating to 100 per cent overseas employment while the employee has been NR then it can be taken tax free regardless of where it is paid.
This exemption is extended so that the redundancy payment will also be exempt where the overseas employment as a fraction of the total employment exceeds any of the following:
75 per cent of the whole employment.
Where the employment exceeds 20 years all of the last 10, being outside the UK.
Where the employment exceeds 20 years and half of it including any 10 of the last 20 are abroad.
If the employment fails all of the above, the amount received can be reduced by the proportion of overseas service as a fraction of the total employment.'
Furthermore the first 30K of a redundancy payment is not taxed at all, only the balance at your marginal rate of tax. You must also consider any tax deducted in the country in which you worked being deducted from your redundancy payment. If that country has a Double Taxation Treaty with the UK then any tax deducted will probably be allowed as a tax credit against any UK liability over the 30K tax free tranche.
You will need to sit down with a wet towel round your head and the backs of lots of envelopes to determine your exact position.
I do hope I have been able to shed some light on your possible position.
Customer: replied 1 year ago.

Keith - many thanks answer. The calculation from the company's accountants of the redundancy payment - which is substantial at 307,000K - was based on an incorrect service record which overstated my overseas service. It listed not much tax on the UK portion - seemingly just taxing the pay in lieu of notice and ex gratia payments, not the severance itself. But the calculations included tax on US and Japanese service which was erroneously long. I think that I still qualify under section 3 (employment exceeds 20 years and half of it was abroad) with my correct service record of 27 years, with 14-5 years abroad and 13 years of it foreign service in the last 20 years. I want to confirm that. The accountants' calculation includes tax on my service in the US and Japan that seems unduly high - basically 6 years of my 27 years that I was in the UK they have assigned incorrectly to my postings in the US and Japan. That tax sum deducted /Japanese tax amounts to about 30K and I suspect the deduction should be smaller than that, without me going over the threshold and becoming liable on the UK service. How on earth do I check whether it is in my financial interests to challenge my service record, as HR is reluctant to review it and the company accountants won't recalculate correct service without authorization from HR?

Expert:  bigduckontax replied 1 year ago.
If your HR department decline to correct the position then the threat of an Employment Tribunal hearing to pull them into line might concentrate their minds wonderfully. Once that is cleared the tax position should straighten.
You may have to consult a solicitor to assist you in this matter.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3113
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you support.
I forgot to mention, your trade union, if you have one, may well be able to exert some pressure.

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