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bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I was owed a severance payment of £ 500 k by my former

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I was owed a severance payment of £ 500 k by my former employer. I have incurred £ 30 k of legal costs in getting this paid to me. My employer has now agreed to pay this sum to me which of course will be fully taxable. Will I be able to claim my legal costs incurred against this income?
Submitted: 7 months ago.
Category: Tax
Customer: replied 7 months ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Customer: replied 7 months ago.
This is a tax matter and needs tax advice by a UK tax expert
Expert:  bigduckontax replied 7 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

There are two parts to your question.

Firstly severance pay; 30K of this is tax free the rest charged at your marginal rate of tax. 470K will put you into the additional 45% rate of tax for sums over 150K. Furthermore, you will loose your personal allowance at the rate on one pound for every two quid over 100K so you will loose the lot, sorry.

The refund of your legal costs is outside the scope of UK taxation, is not taxable and need not be declared on your annual self assessment tax return.

Like the curate's egg, some good news some not so good, but you have to earn it to be taxed on it! You could reduce your liability by making contributions to a private pension scheme, 40K this tax year including employer's contributions. In some cases you can go back three years to mop up unused contribution levels, but be careful not to exceed the maximum pension pot allowed. Currently the lifetime allowance is 1 million.

I do hope that you have found my reply of assistance.

Customer: replied 7 months ago.
Thanks but I make two points;
My understanding is that the severance payment has to be gratuitous to qualify for the £ 30 k exemption?
Secondly the legal costs were incurred by me in fighting to get the severance payment made. Since the severance pay is taxable in my hands will I be able to claim my legal costs of £ 30 k as a deduction against my taxable income?
Finally, I am registered personally for VAT as a business consultant. Will I be able to claim input VAT of some for the legal expenses?
Expert:  bigduckontax replied 7 months ago.

No, severance pay is 30K tax free, balance at your marginal rate of tax even if your employer has to be dragged screaming and kicking into the payment process.

The VAT input tax on your legal costs would be reclaimable in the normal way. As you had to fight to receive it then the bill net of VAT would be allowable against trading income thus you would receive it free of tax automatically.

Please be so kind as to rate me before you leave the Just Answer site.

Expert:  bigduckontax replied 7 months ago.

I would love to be able to accept a phone call, but I am operating just now from a country 6 hours ahead of BST so costs would be prohibitive.

I will be back in the UK by Friday. In the meantime you can still follow up and I will respond.

Expert:  bigduckontax replied 7 months ago.

Post to clear my question list only.

Customer: replied 7 months ago.
Sorry KEITH but I need to be absolutely clear on the following two issues:Does a lump sum " gratuitous payment " paid to me on my retirement after 30 years of service qualify as a "severance payment "for purposes of the £ 30k exemption?
Will my legal costs of £ 30 k incurred by me in getting this paid as a result of my former employer disputing payment to me be eligible as a deduction against my taxable income on my self assessment return?
Expert:  bigduckontax replied 7 months ago.

It is a redundancy payment so it does.

No, it will be a business expense as part of yyour trading income as a business consultant.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3373
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 7 months ago.

Thank you for your support.

If you want to phone me I am on 01750 725420, but will not really be compos mentis until Saturday after an overnight flight to Frankfurt and a 5 hour wait for a connection!

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