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Sam, Accountant
Category: Tax
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My questions relate to redundancy pay and tax Assistant:

Customer Question

Hi my questions relate to redundancy pay and tax
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Customer: How much can I type into this box
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
I accepted the offer of voluntary severance from ******** (“the company”) and my employment ended without notice on the 31-Jul-2016.
Prior to this date I had approximately 10.5 years’ service with the company all as an expatriate.
While working in Kazakhstan I was informed that the company needs to reduce the workforce, and because I am not pensionable staff I have been selected to be repatriated back to the base country with the prospect of redundancy. My position in Kazakhstan was filled with a pensionable staff employee.
I was thus repatriated to the UK from Kazakhstan on the 22-July 2016 and placed on the UK payroll through to the end of July 2016.
When the company made the offer of voluntary severance (early June If I recall) it explicitly stated on the web site the payment will be subject to UK taxes, then on the 23rd of June the company introduced a tax equalisation policy to be applied to severance payments and advised the policy was effective from 1st April 2016.
The tax equalisation policy resulted in expatriate employees having foreign service tax relief deducted in favour of the company.
I made it very clear to the company I strongly objected to this policy and did not agree to any deductions payable to the company from my severance payment.
The signing of the severance agreement did not mention any deductions or amounts.
It was never made explicitly clear how the company would implement the tax equalisation of payments so I had to wait receipt of the payment to determine how the tax had been managed.
As far as I can make out company policy effectively:
• Calculates gross the ******** payment as service years * base country salary.
• Calculates hypothetical tax (equivalent to UK tax) on the ******** payment.
• Pays the employee the ******** amount – hypothetical tax.
• Informs the employee the company will manage the tax, then the company:
1. pays the tax for local based staff (to avoid them being taxed twice, once hypothetical, then again by HMRC).
2. deducts and banks the foreign service tax relief expatriates are entitled to.
• Issues a payslip one month later that shows no tax only a net payment amount (payslips should be issued on or before the payment date).
Bullets 1 and 2 above highlight a clear discrimination between the treatment of tax for local and expatriate staff.
The company now informs me my employment ended by reason of voluntary severance rather than a dismissal and as a result I effectively agreed to the policy.
Such a stance by the company is contrary to the law as my rights are not affected in any way through the acceptance of ******** which is still classed as dismissal.
Under UK law I am entitled to a payslip showing gross payment and tax deductions. The company stated to me the entitlement to a written itemised pay statement only extends to a payment of ‘wages or salary’.
Tax equalisation policy is usually applied to employees working overseas in order to minimise the tax burden on the employee. In this case tax equalisation policy has been applied to employees who have been repatriated to the UK (base) and are facing redundancy. The introduction of this policy is only to the direct benefit of the employer.
In addition tax equalisation policy is not regulated by law and therefore cannot be forced upon an employee. There must be a signed agreement and there is no such agreement in this case.
The employer can only make tax deduction payable to HMRC. However, in this case the company has made tax deductions from severance payment (which is a taxable payment under UK law) to their own account. Such deductions are only permitted if the employee agrees in writing and I have entered into no such agreement with the company.
In summary severance is a taxable payment, and as such I should receive a payslip with gross amount and deductions made payable to HMRC.
Customer: replied 1 year ago.
I have raised this claim with ******** and await their response. Prior to making the claim I received this reply from the company:
Your email of 25 October has been passed to me in order to respond to you. My understanding of your position is that you believe that on termination of your employment by reason of ******** you are entitled to a gross severance payment less any applicable taxes. This position is not accepted by your former employer, ******** (‘the Company’).
Firstly, the Company’s position is that any severance payment in excess of a statutory redundancy payment which it chooses to make on a redundancy dismissal is entirely discretionary and ex gratia and is not a contractual entitlement.
Secondly, your employment ended by reason of SVS rather than a dismissal. The Company’s offer of ******** included an offer to pay you a net sum on termination of your employment by reason of ********. You duly accepted that offer and the Company duly paid you that net sum. In these circumstances there is no basis on which you can contend that you have received a sum less than that which you are entitled to on termination of your employment by reason of ********
As regards ***** ***** you have raised in relation to your entitlement to a payslip, in terms of section 8 of the Employment Rights Act 1996 the entitlement to a written itemised pay statement only extends to a payment of ‘wages or salary’. The Company firstly reserves its position as to whether the lump sum severance payment constitutes wages or salary within the meaning of this section. Additionally, and in any event, you have already received a written itemised pay statement which confirms that the payment was made to you without any deduction being made.
In summary the Company’s position is that it has paid you the net sum which it agreed to pay you and that it has not made any unlawful deductions.
I hope that this clarifies the position.
Expert:  bigduckontax replied 1 year ago.

This is a matter for a local, trusted solicitor with a full knowledge of employment law to handle. I cannot switch this to that category as your question has already been switched once.