Settlement Agreement (ex gratia) and PILON tax treatment.

NoMore

I appreciate this might be a complicated question, but could anybody give an idea of how much I would expect after Tax and NI, on a ex gratia payment from my employer of £100,000 and a PILON of £16000 in April. With no plan for any further income in that tax year and also at the point of payment I would have earned gross £4800 (Aprils pay, with termination at end of month)

I am getting confused on the tax treatment of the 100k, I know 30k is tax free, but I get conflicting views on whether NI is due and how much if it is. I know I could ask my employer but we are in middle of negotiation and I want to get it straight in my head rather than relying on them

Wonka_2

As part of the settlement agreement did they offer (or did you negotiate) any financial advice ? 

When I did mine (with not dissimilar amounts) my (ex) Employer agreed a sum towards having the agreement examined financially (on top of the already agreed legal funding) - it was a godsend and save me considerable tax. 

NoMore

Wonka_2 said:

As part of the settlement agreement did they offer (or did you negotiate) any financial advice ? 

When I did mine (with not dissimilar amounts) my (ex) Employer agreed a sum towards having the agreement examined financially (on top of the already agreed legal funding) - it was a godsend and save me considerable tax. 

Still in negotiations so thanks for that advice. Will ask. 

uknick

The £30k tax free amount is only applicable to termination payments.  Is this what the £100k is for?  I assume it is but an ex gratia payment could be for anything.

This link gives you the answer on the tax implications.

Tax on termination payments: What a termination payment is - GOV.UK

But, I think this is better as it spells out the NI issue;

Redundancy | Low Incomes Tax Reform Group

As NI is paid on earned income it makes sense an ex gratia payment is not included in the NI calculation.  But it is due on the PILON as that is deemed as earned income.