Ex-Gratia Payment - Shortend notice

MajorTom_2

Hi Guys,

I'm moving companies/jobs at the end of the month. I currently have a 6 month notice period with my current employer however we have agreed I can leave at the end of November.
Part of the discussions for leaving conditions was I have a number of professional IT certifications which the company would like me to leave behind (my new company do not require them, basically I stay aligned to my current company).
In return for leaving these behind the company will pay me a one off lump sum. The company is happy to pay me this lump sum as ex-gratia so I avoid tax on the payment (it is lower than £30k).

My finance director is under the impression if I take the money as ex-gratia then I would have to wait until my 6 month notice period would have been served (April 2012), not that I have to stick around for that time just that's when I would be paid.

From looking online and not being a tax expert I have the understanding ex-gratia payments can be made to someone who doesn't work for a company (I won't be after 1st Dec 2011) for in kind services and the service (e.g. Obtaining accreditations for the company) not being defined as part of my current contract which it isn't.

I cannot find anything around waiting to the end of a notice period only something around PILON (Paid in Lieu of Notice) but this is to do with the company giving notice to the employee and paying them ex-gratia for shortening their notice period.

If there's any tax experts that can help I would be really grateful?

Thanks,

MT

System

Are they personal certifications? I fail to see how they can be left with the old company.

MajorTom_2

They are personal qualifications, basically with each Vendor profile you state the name of the company you work for and the company gets recognition towards their partner profiles.
It does work as the company I work for has done it in the past with other employees that have left the company, just not been done with ex-gratia payments.

Cheers,

MT

McKneff

Im no expert but I would have thought that paying an ex gratia payment for you to someone else smacks of tax evasion/fraud/ etc. etc.

If the company is audited and are asked where/why was this money paid to xxx what are they going to say, there has to be paperwork somewhere or am i just being niaive.

getmore4less

As the FD why he thinks the payment needs to be delayed?

plenty get tax free payments through mutual seperations with Comprimise agreements.

MajorTom_2

A Compromise agreement is to be drawn up (basically so I don't move my certifications). I will ask the question why he thinks I need to wait though.

Thanks,

MT

pjclar02

Hello MT

If your contract entitles you to a six month notice period, and you have an agreement with your employer that you will not work this notice period, I suspect that your finance director is concerned that any payment made to you now could be viewed by HM Revenue & Customs (HMRC) as being a payment in lieu of that six month notice period (and such a payment would be taxable).

If the company made an ex-gratia payment to you now tax free, and HMRC subsequently argued that this was actually a payment in lieu of notice that was taxable, HMRC would approach your ex-employer for recovery of the PAYE that should have been withheld on the payment. So I can understand your FD taking a cautious approach.

This is a complex area of tax legislation, and the employer will have to be quite careful about how they categorise any payment to you in order for it to qualify as tax-free.

I hope this is of some help

MajorTom_2

Thanks PJClar02, thats really helpful.

Regards,

MT