Employment Law/Tax Advice

fartingspartan

fartingspartan

fartingspartan

Associate
Joined
15 Dec 2011
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232
Hi All,

Just want to float somthing in here and see if anyone can offer any advice.

Long story long - I am leaving my current employer to start a new job in Jan (which they don't know I have already got lined up, they think I have just had enough).

I was on 6 months notice officially but we agreed I would only be tied to 3 months.

We then agreed that it is all a bit awkward being the guy who is leaving in the office and as such I would finish on the 11th of December, but still be paid 3 months and also be available on phone/to come in at weekends should I be required (highly unlikely).

Handover completed etc.

All good and well - But on discussion I explained that being made redundant/settlement agreement type stuff brought with it tax advantages ie up to £30K can be paid tax free.

Which everyone (My boss) was happy to go along with.

But now - Finance Director - who has never been my biggest fan, has got involved and has said that the company will make an "Ex-Gratis payment to the amount due ie 3 months tax.

Stating that being made redundant/settlement agreement creates too much risk for the business if I turned hostile after and could claim I was made redundant without following due process etc and that the cost of drafting a solid settlement agreement is too much for what he see's as doing me a favor.

He is like 69 and has worked here 40 odd years - acts like it is his money to the point of wanting to go out his way to screw people over eg paying it tax free is costing the business what it would be paying out anyway, just annoys him that someone is getting a benefit also he seems to hate anyway younger than him as he his boss wants him to retire but he keeps making himself look like the hero/bull dog of the company.

I asked about the tax implications of this Ex-gratis payment and he has said that I am not liable for tax as it is not a contractual payment as such it is not through earning and as such is tax free.

Now, this makes no sense to me as if this was the case everyone and their auntie would be using this to make money tax free - Also I officially finished at the end of Nov ie P45 in last pay check etc but they are adding from then till the 11th of Dec into this payment, again tax free.

So on paper this is company A giving random guy B a payment of £XX,000 which I am sure if found I would have to explain/justify and given these things can hang around for 7+ years it concerns me.

Also - his statement that not to worry, its ex-gratis and even if it was questioned it would be the company who would be chased for tax is not comforting given he has basically said he is not going to put any of this in writing and I will just get a BACS transfer on the 11th to the agreed amount.

Company I work for is a SME/Family owned business so it is not as defined as most corporate etc hence these Dell Boy type chats.

Now I could go to my boss who is his boss and push for in writing/formal settlement type stuff - but I am worried they may twig I have another job already, maybe view all this as too much work and then knowing I have another job push me to stay for the whole notice period etc.

What do you all think, does this Ex-Gratis payment thing sound legit and if so should I just shut up and go along with it?

Thanks
 
but you're not being made redundant, you are resigning, why you expect the tax benefits that come with redundancy payments I don't know. Essentially the payment is being made in lieu of notice and is taxable.

however it depends on how they word the ex-gratia payment, see here : http://www.monacosolicitors.co.uk/articles/ex-gratia-payment/

you will still have to declare it on your self-assessment
 
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For once, I agree with MrMoonX! You aren't being made redundant, you are simply resigning and your notice period has been altered. To me, you aren't entitled to any payment whatsoever. Why do you think that you are?
 
Only you know the circumstances, but in all honesty - you need to see a solicitor, and maybe even a tax specialist,
 
Ahleckz said:
For once, I agree with MrMoonX! You aren't being made redundant, you are simply resigning and your notice period has been altered. To me, you aren't entitled to any payment whatsoever. Why do you think that you are?
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I really don't understand why he thinks he should be paid off, surely the company are doing him a huge favour by not holding him to six months notice and letting him go now :confused:
 
MrMoonX said:
but you're not being made redundant, you are resigning, why you expect the tax benefits that come with redundancy payments I don't know. Essentially the payment is being made in lieu of notice and is taxable.

however it depends on how they word the ex-gratia payment, see here : http://www.monacosolicitors.co.uk/articles/ex-gratia-payment/

you will still have to declare it on your self-assessment
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Agreed, also wouldn't part of this be to cover their own arse, afterall you can't make someone redundant and then advertise for that same position - it leaves them open to a lawsuit from you.

Also to point out as you've suggested, they are doing you a favour letting you finish your notice period earlier, if you start to make things awkward for them, they could just do the same back.
 
I think the op suggested that his 3 months gardening leave be paid as "redundancy" and marked as such so he could get it paid tax free.

Person in charged realised this was totally illegal and may come back to bite the company on the arse and a few months down the line Op could have probably taken company to the cleaners.

Company then decided to pay the tax to the op anyway so hes not out of pocket and pay it tax free as an ex-gratis payment.

OP is complaining about leaving the most generous company I;ve come across.

OP wants to go for formal paperwork which would probably mean he ends up losing everything.

Just move on and count your blessings you are a lucky SOB!
 
If they make you serve you 3 months notice, would you be able to start your new job as they expect?

Do you need their references at all?

Finally, if they know what they are doing, any redundancy payment of that amount, would probably entail a 2 way contract that could risk you having to pay it all back to them, due to the fact you appear to be deceiving them.

I would say take the payment, and if you end up being taxed, just suck it up and be grateful.
 
Greebo said:
I think the op suggested that his 3 months gardening leave be paid as "redundancy" and marked as such so he could get it paid tax free.

Person in charged realised this was totally illegal and may come back to bite the company on the arse and a few months down the line Op could have probably taken company to the cleaners.

Company then decided to pay the tax to the op anyway so hes not out of pocket and pay it tax free as an ex-gratis payment.

OP is complaining about leaving the most generous company I;ve come across.

OP wants to go for formal paperwork which would probably mean he ends up losing everything.

Just move on and count your blessings you are a lucky SOB!
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+1

Exactly what it sounds like to me!
 
I think there's a question about whether the ex-gratis payment is taxable, and I can't find any reason why it wouldn't be.
 
Caged said:
I think there's a question about whether the ex-gratis payment is taxable, and I can't find any reason why it wouldn't be.
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The company can choose to pay the tax on an employee's payment. We have done so in the past where we work.

Maybe they are doing that?
 
The OP reads like that's not the case and instead he's just being told that he's being given a lump of cash that doesn't need declaring.
 
Payments in lieu of notice (PILONs) aren't the most straightforward areas of tax and your situation isn't the most common.

From what I understand is that you have resigned and given notice but your employer is making a payment to you in exchange for not working your full (or subsequently reduced) notice period.

Generally on termination a PILON is taxable as normal if provided for in your employment contract or you are somehow other contractually entitled to it (eg if it is specified in the staff handbook), however it can also be taxable as general employment earnings if the employer customarily makes PILONs or you otherwise expect to receive a PILON.

If the termination payment doesn't fall into the normal earnings from employment provisions it can fall under the termination rules you referred to which allows up to £30k tax free.

As your situation seems somewhat unusual you should seek proper advice and engage a tax adviser who will probably charge in the region of £500 to tell you what you need to know.
 
I am absolutely amazed that you're getting let off your notice period and also being paid for it. To the extent I think you should give up this plan for it being tax free.
 
Caged said:
The OP reads like that's not the case and instead he's just being told that he's being given a lump of cash that doesn't need declaring.
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He's only being given the tax which is being deducted from his wages as a lump sum ex gratis payment. It reads they have paid him his salary and taxed it as normal.
 
Have you resigned, on an agreed (by you and your employer) reduced 3 moth notice period (forget if you come in or stay in your garden for now) or have you actually signed a compromise agreement that will see you leave after 3 moths of that agreement signature date?
 
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