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Ben Jones
Ben Jones, UK Lawyer
Category: Law
Satisfied Customers: 49806
Experience:  Qualified Solicitor - Please start your question with 'For Ben Jones'
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Hi I was told I was going to be made redundant on Wednesday

Customer Question


I was told I was going to be made redundant on Wednesday 27th March 3013 as of 31st March 2013. They told me not co come in on Thursday and then to get back to them next week on the two proposals they have offered. The first was a compromise agreement of 3 months salary ( 3 month notice period),accrued holiday as well as statutory amount. The 3 months and holiday pay were net of tax. Also they owed me 3 years worth of pension payments which they would pay to my pension provider.
The 2nd proposal offered was a without prejudice agreement of 3 months salary (net again),statutory pay and finallymy 3 year pension and holiday pay rebadged as a ex gratia payment net of tax.
Now I want to know is this correct .I would accept the without predudice agreement. I thought the first 30k was tax free.Does my salary have to be gross as effectively I am redundant from 31st March but they are giving me 3 months salary as per my notice. Can they tax the holiday pay and pension as one off payment? Many Thanks
Submitted: 4 years ago.
Category: Law
Expert:  Ben Jones replied 4 years ago.
Hello, my name is Ben and it is my pleasure to be able to assist with your question today. Please let me know if your contract says you are entitled to 3 months notice period?
Customer: replied 4 years ago.

Yes its 3 months either way, from me or from them

Expert:  Ben Jones replied 4 years ago.
Does your contract say you can be paid in lieu of notice?
Customer: replied 4 years ago.
As far as I am aware, no it does not
Expert:  Ben Jones replied 4 years ago.
It will be important top check if that is the case or not as it will affect the taxation of these payments.

The way it works is that any contractual payments will be subject to tax. So that would include all wages up to date of termination, plus holidays, contractual notice period, commission, bonuses, etc. Your employer may wish to try and disguise notice pay or more of these payments as an ex-gratia payment free of tax but it can certainly be challenged by HMRC if they believe this is what has happened.

However, if your contract does not state that you can be paid in lieu of notice and that is what the employer is doing, you may then argue that in doing so they have breached your contract. What normally happens then is that the employer would pay you the notice you are due as damages for breach of contract, which would be tax free. That is why it is important to check whether they can do that or not. However, if they can do that, then these will simply be considered contractually owed payments and will be taxable. Your actual redundancy payment will not be taxable for the first £30,000 though as that will be exempt.

Please take a second to leave a positive rating as that is a very important part of our process. Your question will not close and I can continue providing further advice if necessary. Thank you
Customer: replied 4 years ago.
How about my 3 years worth of pension which they are taxing and giving my as an ex gratis payment? Do they have to tax it or would that be tax free ?
Expert:  Ben Jones replied 4 years ago.
That would depend on several factors. For example, if the payment is made into a registered pension scheme, the payment may be made tax free as long as it is:
- Part of an arrangement relating to the termination of the employee's employment.
- Made in order to provide benefits for the person in accordance with the rules of the scheme.
Customer: replied 4 years ago.
I get that,but they are taxing it and giving it to me as a addition to my net salary and statutory pay.
Expert:  Ben Jones replied 4 years ago.
In that case they could be seen as a lump sums or other non-cash benefits provided out of registered pension schemes. These would only be exempted from tax if one of the following situations arise:
• They are paid as compensation for loss of employment or loss of earnings where the loss is due to ill health.
• They can be properly regarded as earned by past service.

Even if paid tax-free, it can always be challenged by HMRC in the future if they believe this was a disguised payment.

As your original question has been answered I would be grateful if you could please quickly rate my answer - it only takes a second to do. I can then continue providing further advice and answer follow up questions if needed. Thank you.