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  • FIRST POST
    • mazzlestar27
    • By mazzlestar27 30th Nov 17, 10:41 AM
    • 8Posts
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    mazzlestar27
    Tax on Ex-Gratia Retention Bonus
    • #1
    • 30th Nov 17, 10:41 AM
    Tax on Ex-Gratia Retention Bonus 30th Nov 17 at 10:41 AM
    Hi all,


    Posting on behalf of a friend who is having some trouble with her redundancy and retention bonus payment. Her payslip breaks it down as follows:


    Basic Pay (November): £1,551.00
    Back Pay (Holiday accrued but not taken): £214.75
    Ex-Gratia (Retention Bonus): £10,856.98
    PILON: £1,789.60
    Redundancy (Statutory): £1431.68


    PAYE tax on the above? £4875.46


    The retention bonus is for continuing to work through 2017, as they were told about the closure of the office late in 2016. She has contacted her employer about this, as she was not expecting to pay tax on the Ex-Gratia payment. This was the response:


    "With regards to the items on your payslip, the following have not been deducted for tax and NI contributions:


    Redundancy


    - With regards to the items on your payslip, the following have been deducted for tax and NI contributions:


    Basic pay (November 2017 salary)


    Back pay (accrued but untaken annual leave up to 30 November 2017) - contractually entitled


    PILON (pay in lieu of notice) - 5 weeks notice pay, not required to work



    - Where I think your main query rests is with the payment type 'Ex Gratia.'

    This is the pay type that has been utilised to make your Retention Bonus payment. The reason it has been deducted for tax and NI is because your Retention Bonus is 'reward for work done' in other words you were contractually entitled to receive 'x amount' for continuing to work until the day the office closes on 'x date.' Therefore it would not be classified as a non-contractual payment and would not fall into the bracket of the £30k tax-free termination payment.



    If you do still disagree with the tax and NI deductions that the company pay to HMRC, this is something that you would be able to discuss with them and look to claim back directly with HMRC."


    Can anyone help us out with where exactly she stands on this and if it's worth going to HMRC? There's an awful lot of conflicting info out there about Ex-Gratia payments!


    Thanks


    Maz
Page 1
    • antrobus
    • By antrobus 30th Nov 17, 12:06 PM
    • 15,296 Posts
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    antrobus
    • #2
    • 30th Nov 17, 12:06 PM
    • #2
    • 30th Nov 17, 12:06 PM
    ......

    The retention bonus is for continuing to work through 2017...

    This is the pay type that has been utilised to make your Retention Bonus payment. The reason it has been deducted for tax and NI is because your Retention Bonus is 'reward for work done' in other words you were contractually entitled to receive 'x amount' for continuing to work until the day the office closes on 'x date.' Therefore it would not be classified as a non-contractual payment and would not fall into the bracket of the £30k tax-free termination payment.
    Originally posted by mazzlestar27
    Isn't that the answer?

    It is a payment for work done and is therefore subject to PAYE.
    • Tasha2502
    • By Tasha2502 30th Nov 17, 2:32 PM
    • 1 Posts
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    Tasha2502
    • #3
    • 30th Nov 17, 2:32 PM
    • #3
    • 30th Nov 17, 2:32 PM
    But even if thatís the case surely the rest of the pay shouldnít have been taxed. The company hadnít informed HMRC that there was a redundancy pay and so the whole lot has been taxed? And wouldnít that be down as bonus on the wage slip not ex gratia which is tax free?
    • antrobus
    • By antrobus 30th Nov 17, 3:15 PM
    • 15,296 Posts
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    antrobus
    • #4
    • 30th Nov 17, 3:15 PM
    • #4
    • 30th Nov 17, 3:15 PM
    But even if thatís the case surely the rest of the pay shouldnít have been taxed. The company hadnít informed HMRC that there was a redundancy pay and so the whole lot has been taxed? And wouldnít that be down as bonus on the wage slip not ex gratia which is tax free?
    Originally posted by Tasha2502
    Redundancy was not it seems taxed.


    "With regards to the items on your payslip, the following have not been deducted for tax and NI contributions:

    Redundancy"
    Originally posted by mazzlestar27
    The Ex-Gratia (Retention Bonus) was a payment for work done.
    • getmore4less
    • By getmore4less 30th Nov 17, 4:18 PM
    • 30,766 Posts
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    getmore4less
    • #5
    • 30th Nov 17, 4:18 PM
    • #5
    • 30th Nov 17, 4:18 PM
    Retention pay is contractual taxable pay.

    They could have been smarter and done it as enhanced redundancy.
    • mgdavid
    • By mgdavid 30th Nov 17, 6:36 PM
    • 5,277 Posts
    • 4,464 Thanks
    mgdavid
    • #6
    • 30th Nov 17, 6:36 PM
    • #6
    • 30th Nov 17, 6:36 PM
    the tax does look rather high! without knowing her PAYE code one can't comment more accurately.
    Don't forget a fair chunk will have been taxed at 40%, and if she doesn't earn too much in the remaining 4 months of the year she will probably get a large amount back.
    But yes, as worded the Retention bonus is taxable. They haven't done her any favours - but then they probably aren't smart enough to know how (that's why they work in HR).
    A salary slave no more.....
    • IanSt
    • By IanSt 1st Dec 17, 9:06 AM
    • 149 Posts
    • 104 Thanks
    IanSt
    • #7
    • 1st Dec 17, 9:06 AM
    • #7
    • 1st Dec 17, 9:06 AM
    What information was your friend given when she was originally informed that she would be in line to receive the retention bonus?

    If she has some written down information that said it would be done in a tax-free way then she has something to work from, but if not then there's probably not a lot she can do.

    As per mgdavid she will get some money back from the hmrc if she has overpaid on tax - which she almost certainly will have.

    To find how much money she is likely to get back she will need to go to a paye calculator like https://listentotaxman.com and calculate how much tax she would pay over a year and then look to how much has actually been taken from her on her salary slips over the tax year.
    • jobbingmusician
    • By jobbingmusician 2nd Dec 17, 10:25 AM
    • 18,827 Posts
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    jobbingmusician
    • #8
    • 2nd Dec 17, 10:25 AM
    • #8
    • 2nd Dec 17, 10:25 AM
    If this was VOLUNTARY redundancy, I agree. If she has it in writing that this is a redundancy payment, then she should write to the employer saying that she was promised a RP, which is non-taxable, and this is the basis on which she accepted redundancy.

    If the redundancy was forced on her, then sadly the employer is correct, if mean, to treat it as payment for work done. As previous posters have pointed out, some of the deduction may be returned if her employment for the rest of this year is not taxable at 40%.
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    • mazzlestar27
    • By mazzlestar27 2nd Dec 17, 10:33 AM
    • 8 Posts
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    mazzlestar27
    • #9
    • 2nd Dec 17, 10:33 AM
    • #9
    • 2nd Dec 17, 10:33 AM
    Thanks all, that's really helpful she has been in touch with HMRC who think she HAS been over taxed by at least £2k, but she won't see that til April. I'm trying to convince her to see that as an unexpected Easter bonus ��

    I thought it seemed odd that they'd done it in this way, seems like they've kind of deliberately screwed her over! I'm in the car (not driving I promise) right now so will respond properly later, but thanks so much for everyone's responses so far!

    She's a sales administrator with a salary of less than £20k so the tax man ought to be charitable come April!
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