Ex Gratia confusion - Please help!

bargainhunter888

Hi Guys,

I have recently been made redundancy from where I have been working over just under 6 years.

They detailed the package as below for all employees

1) 3x week per full year worked (redundancy)
2) 0.5x week per full year worked (closure package - enhancement)
3) 12 week Ex-Gratia (payable on completion of notice period)
4) Bonus paid 100% pro rata per full months.

now it was mentioned to us that we would not pay tax on the ex gratia (12 weeks pay) if we worked to full notice. we didn't get any formal documentation about taxes etc, but on letters stating the payments. the redundancy package encompasses the first 3 points. The company announced this and therefore employees that left early on got everything paid tax free, with the exception of bonuses I believe were taxable.

However recently there has been gossip in the office regarding confusion between company and tax man and said that the ex-gratia is taxable.

I left after this came about and I noticed the tax man has taken a large chunk of my pay, element 1 and 2 was tax free, however the 12 weeks ex-gratia was taxable.

the total amount was under the £30k, however I'm annoyed that certain employees weren't taxed on the 12 weeks, but I have been. I was told that the tax man would re-coup the payments from employees that were paid tax free in the future.

Therefore I have completed 5 full years I was expecting:

3.5 x 5 + 12 weeks all tax free.
However in reality I got 3.5 x 5 tax free and 12 weeks was taxable, NI and Student loan deductions

Can anyone help and point me in the right direction if I have been taxed correctly?

Many Thanks

marybelle01

There's a very simple way of working this out. HMRC have decided that the ex-gratia payment is taxable. Therefore it is taxable. Employers can make mistakes and yours obviously have made one when they stated that the payment is not taxable. But the mistake that few are willing to make is arguing with the taxman. HMRC have told them to tax the payments and they must do so. It is correct that if other workers have not been taxed correctly HMRC will recover the underpayment from them directly, so I hope they haven't spent all their money.

antrobus

bargainhunter888 wrote: »

...3) 12 week Ex-Gratia (payable on completion of notice period)...

According to HMRC;

The term ‘ex-gratia’ should only be used in relation to a payment the employer makes when under no legal or contractual obligation to do so.

I'd guess that the terms of the 'package' were set out in such a way that the offer of an extra payment payable on completion of the notice period was deemed contractual rather than ex-gratia by HMRC.

bargainhunter888

Hi all, thanks for your replies.

Yes I'm annoyed, I just don't understand how come the 3x and 0.5x is tax free then the 12 weeks payable on working notice ain't?

Could the company have worded or coded the payments differently to ensure we didn't get taxed?