Ex Gratia Payment

jimbohop

I gave 1 months notice to my employer in Jan, and they would like to give me an ex-gratia payment so we part on good terms. Do either of us need to involve any lawyers in the process? and can the payment be made tax free? Are there any additional considerations?

jobbingmusician

If they are giving you a payment so you part on good terms, it sounds like a settlement agreement. This would not be binding unless you get independent legal advice - make sure your employers pay for this!

ReadingTim

jobbingmusician wrote: »

If they are giving you a payment so you part on good terms, it sounds like a settlement agreement. This would not be binding unless you get independent legal advice - make sure your employers pay for this!

Absolute rubbish - if you sign an agreement, it is legally binding. One of the reasons you may wish to take independent legal advice before you sign it is because it is legally binding after you have signed it.

DigForVictory

Offhand I cannot think of any circumstances where an employer giving an employee money is not, in some form, taxable.

This "on good terms" bit also raises an eyebrow. Who is contemplating what failure to reveal to accountant/taxman & why?

jimbohop

I understood as part of settlement agreement, any compensation payment upto £30k can be tax free, right?

Pricivius

As JM says above, if it is a settlement agreement, you MUST take independent legal advice. It is a legal requirement for the settlement agreement to be valid and enforceable.


In some circumstances, the first £30,000 of an ex gratia payment may be taxed at 0%, but this will depend on your contract of employment and the company's history with such payments. The law is changing in this area due to HMRC and some recent cases so it's not a given and you would be at risk of HMRC challenging the payment and demanding tax.

Masomnia

jimbohop wrote: »

I gave 1 months notice to my employer in Jan, and they would like to give me an ex-gratia payment so we part on good terms. Do either of us need to involve any lawyers in the process? and can the payment be made tax free? Are there any additional considerations?

You need to have taken legal advice in order for any Settlement Agreement that you might sign to be valid.

So, take the cash. It won't prevent you from bringing a claim.

flower77g

Not necessarily a situation which needs a settlement agreement. Some employers give ex gratia payments to staff leaving who they rated highly in the hope they will work for them again in the future. Not enough information here to tell.

jobbingmusician

ReadingTim wrote: »

Absolute rubbish - if you sign an agreement, it is legally binding. One of the reasons you may wish to take independent legal advice before you sign it is because it is legally binding after you have signed it.

Oh fine. That would explain why ACAS says (http://www.acas.org.uk/index.aspx?articleid=4395)

Reaching a settlement agreement

For the settlement agreement to be legally binding the following conditions must be met.

• The agreement must be in writing.
• The agreement must relate to a particular complaint or proceedings.
• The employee must have received advice from a relevant independent adviser, such as a lawyer or a certified and authorised member of a trade union...........

Ja7188

Depending on whether the OP's contractual notice period is longer than one month, could this it be that this 'ex-gratia' payment is actually a PILON? If so, I believe this would be tax-free up to £30k provided that his/ her contract doesn't include a clause allowing the employer to use PILON to allow people to leave ahead of their notice period expiring...