Early Termination Fee Claim Limit

MSMAX

Hi All, 

I have just received a letter from my former employer that they audit uncovered unpaid Early Termination Fee for the car I had from them until the end of April. The letter is dated 16 December and they are giving me 30 days to pay the balance in full otherwise they will report amount to HMRC as a taxable benefit in kind on which I will pay additional tax.

This is quite short notice as I got the letter today a few days after Christmas. 

I have left the company on the 2nd of May this year and gave the car back in very good condition, with 14k less than a contracted milage after 1yr and 11mths of 3yr lease contract. Early repayment was normally chargable for each full year of the contract. 

Can anyone advise what are my options to deal with that situation?

Is there any limit on that fee recovery time?

Thanks in advance. 

M

DullGreyGuy

As BIK you'd pay just your marginal rate and so repaying them is certainly not the sensible option.

Firstly check your old contract of employment and any additional paperwork signed in relation to the car... its common for a clawback clause to be there as its meant to discourage leavers rather than penalise the employer. 

Assuming you are liable is the cost right? If there is nothing in any of the contracts then you can deny its your liability, if its in the contracts and you think the value is correct then tell them to add it as a benefit.

Under normal contract law they have 6 years to make recovery, 5 in scotland, dont know if employment law brings it in at all. 

MSMAX

Thank you for your response. 

The amount itself is not that big 1.5k but I still feel it is excessive knowing that during covid car was essentially collecting the dust rather than driving. The contract stated about 700 pounds for each full year of contract so paying for a full 2 years when I had 13 months left does not feel right. Also there was an agreement my Employer reached with lease company about claiming back unused miles however I was told it was not applicable to me as I had terminated early.

Can you explain me how adding that as a benefit would be covered by me?

I assume it will be via tax code change. Is that the full amount or just a tax on it?

Marcon

MSMAX said:

Thank you for your response. 

The amount itself is not that big 1.5k but I still feel it is excessive knowing that during covid car was essentially collecting the dust rather than driving. The contract stated about 700 pounds for each full year of contract so paying for a full 2 years when I had 13 months left does not feel right. Also there was an agreement my Employer reached with lease company about claiming back unused miles however I was told it was not applicable to me as I had terminated early.

Can you explain me how adding that as a benefit would be covered by me?

I assume it will be via tax code change. Is that the full amount or just a tax on it?

Assuming you are on the hook (as suggested above, check the paperwork - or if you've binned it, ask your employer to supply copies showing you are liable) and that's the amount your former employer has incurred under the terms of their leasing agreement with the supplier, then excessive or not, that's the amount due, I'm afraid - ditto the unused miles point.

Given the modest amount, it's likely HMRC will change your tax code and collect the tax due on the extra £1,500 that way. Happily there's no employee NI payable.

MSMAX

Thanks again for the explaination. I will try to find the paperwork if I had it in a manual version rather than electronic to which I will no longer have access to. 

The language the letter I have received is written in does not imply anything else than reporting the amount to HMRC as taxable benefit. There is no mention of any other actions to be taken.

Again I will check the contract to make sure.

DullGreyGuy

A taxable benefit is just taxed as if you'd received it as cash so if the fee is £1.5k then you pay £300 or £600 in tax depending on if you are a 20% or 40% tax payer