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bigduckontax, Accountant
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I am agreeing a Settlement agreement with work. The ex

Customer Question

Hi - I am agreeing a Settlement agreement with work. The ex gratia payment is £above the £30k tax free sum. I am also being paid leave and holiday on top of this all which is taxable. Can I delay additional ex gratia payment above £30k to end of april 2016 so I do not pay tax at the higher rate. The payment is meant to compensate me for loss of income during 2016 so this seems fair but someone told me that HMRC will not allow this?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. You have to be very careful here; are you sure that this is a redundancy payment and not compensation for loss of office. An ex gratia payment looks suspiciously like the latter. You are correct in your surmise that a redundancy payment is 30K tax free and the balance at your marginal rate of tax. Compensation for loss of office is 100% exposed to Income Tax. It is normal for a redundancy payment to be paid on the last day of employment, but it is sometimes delayed. If you let it go into the next tax year, 18/19, you could well reduce your tax exposure. I am so sorry to have to rain on your parade.
Customer: replied 1 year ago.
Thanks keith, The agreement has been drafted stating £50k (severance payment) as compensation for loss of employment and tax will be payable in respect of any amount in excess of £30k in accordance with section 403 of ITEPA. I am now concerned whether I am entitled to the tax free element?
Expert:  bigduckontax replied 1 year ago.
In that case, as the statutory section has been quoted in the draft agreement it is a redundancy payment and the first 30K tax free. I would be inclined if, the draft has not been finalised, to peruse same and have any mention of 'severance payment' be changed to 'redundancy payment' under s.403, ITEPA. Just belt and braces you understand, to be on the safe side. I think that is rather better news than my first response which was, I admit, a tad dismal. Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax, Accountant
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Customer: replied 1 year ago.
Thanks for the advise. I have the opportunity to amend the agreement. Sorry, just to clarify; on the basis of the above and if agreeable with my Employer can I agree to delay some of this payment above £30k to the next tax year to avoid paying the higher rate tax etc. ie April 2016 ?
Expert:  bigduckontax replied 1 year ago.
What a good idea; your employer clearly cannot be bothered to settle on time! However splitting the payment is not a good idea and sure to attract HMRC's attention. Just take the cash in the tax year most beneficial to you.
Thank you for your support.

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