Ex Gratia Payment

Shehzad

Hi Guys,

Can anyone help me?

I made a grievience at work, and they decided not to give me a hearing but infact offer me an amount (less than 30k) to forgo this. Which I accepted.

I am a little confused as to whether I have to pay tax on this amount or not.

Can anyone else help me?

More info can be provided if needed.

ErisBadb

Hi - I found the following info. Think it makes your situation clear.:) From my understanding you wouldn't have to pay tax on it.

Ex gratia or golden handshake payments may be treated by HM Revenue and Customs (HMRC) as payment for past services or as compensation for loss of a job.

A payment will usually only be treated as a payment for past services if it is specifically provided for in the contract of employment. If this is the case, a payment for past services will be treated as wages and will be taxable in full.

If there is no contractual obligation on the employer to make a payment, which is the nature of ex gratia payments, such payments should be treated as compensation for loss of a job and not payments for past services.

Payments which are compensation for loss of a job are tax-free up to the first £30,000. To determine how much tax, if any, is payable, the ex gratia or golden handshake payment will be added to any other payment the client receives as compensation for loss of her/his job.

Shehzad

Thanks very much! Ive just gotta look for a new job now.