Ex gratia payment advice

ejfW9

Looking to see if anyone has thoughts on the below...

I have recently resigned from my job with a one month contractual notice period. My employer is offering me a lump sum payment if I work an extra month (so two months in total)... does anybody know if this could be considered as an ex-gratia payment and therefore be paid tax free (it is less than £30k), or can ex-gratia payments only be made in redundancy/termination situations?

Many thanks in advance!

antrobus

ejfW9 wrote: »

Looking to see if anyone has thoughts on the below...

I have recently resigned from my job with a one month contractual notice period. My employer is offering me a lump sum payment if I work an extra month (so two months in total)... does anybody know if this could be considered as an ex-gratia payment and therefore be paid tax free (it is less than £30k), or can ex-gratia payments only be made in redundancy/termination situations?

Many thanks in advance!

An ex-gratia payment is simply a payment made where there is no contractual obligation to do so.

You should ask your employer whether or not PAYE will be applied. I'd guess that the answer would be yes.

jimmo

You are in a termination situation. The fact that you decided to terminate your employment makes no difference to the tax position.
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim12805

If you work the extra month will you be paid your regular salary for that month and get a lump sum on top of that?
At the moment I would say that it is arguable whether the lump sum will be a reward for work done (taxable in full) or compensation to you for giving up your lawful right to terminate your employment with one month notice (taxable as a termination payment so the first £30,000 exempt).
If you are going to get your normal salary for that month I would think that you are more than half way to having the lump sum regarded as compensation but it would be wise to get your employers offer in writing specifying that the lump sum is compensation for ceding your legal right to give one months notice.

getmore4less

I think the company is offering a new contract(on expiry of the old one) for 1 month on twice the rate of the current one.

Or modifying the existing contract for the final month and the notice being modified to 2months

Throwing away the resignations and producing a settlement agreement might work.