Ex Gratia Payment + Tax Free Allowance Question

Keen_Investor · 10 January 2018 at 7:03PM

Hi,

Salary of £99k

Ex gratia Payment of £18k (Tax free settlement agreement for employment termination/redundancy)

Does this £18k get added to the salary of £99k to make up the total income to £117, and therefore reducing the tax free personal allowance during self assessment?

Or does it not get taken into consideration with the overall income earned, since it's supposed to be a tax free payment?

I tried phoning HMRC, but they're getting so many calls that they just say phone back another time... which I will do. But I wondered if anyone knew the answer to this.

Thanks :-)

BoGoF · 10 January 2018 at 7:20PM

These payments can be complicated. Sometimes employers call them ex-gratia when they are not. Really depends on what your contract says and how the payment was calculated.

Keen_Investor · 10 January 2018 at 7:33PM

BoGoF wrote: »

These payments can be complicated. Sometimes employers call them ex-gratia when they are not. Really depends on what your contract says and how the payment was calculated.

It's worded that they believe it to be tax free. It's not calculated based on my contract. Just an amount offered, that I accepted. I'm waiting on a technical advisor, on 3rd attempt HMRC didn't tell me to call back so hopefully they can answer it.

It's just whether or no the HMRC Self Assessment system would automatically include it in overall income. In fact I can't even see anywhere online to enter it.

Dazed_and_confused · 10 January 2018 at 7:52PM

If you include it on your tax return it will be treated as taxable income, that's what a tax return is for.

I agree with BoGoF, you need to check whether it is taxable or not with the payer. If it's genuinely not taxable then it doesn't need to go on the return just as you wouldn't enter ISA interest or premium bonds winnings.

Keen_Investor · 10 January 2018 at 7:55PM

I've just been told it's exempt from tax up to £30k, so as it's £18k it gets entered into the following box.

"Exemptions for amounts entered in 'Lump sums or benefits received from an Employer-Financed Retirement Benefits Scheme excluding pensions':"

This then doesn't get added to the full income amount, and therefore as that is £99k, it doesn't take the full amount earned over £100k which in turn means the personal allowance is not reduced.

Tom99 · 10 January 2018 at 7:56PM

Since it is under £30k and payment for terminating your employment I think it is tax free.

https://www.legislation.gov.uk/ukpga/2003/1/part/6/chapter/3

BoGoF · 10 January 2018 at 8:52PM

Again, it's not as simple as that.

What does your contract say about termination? Having said that if your ex employer has got it wrong and it is taxable then it wont be your problem - unless you have signed anything to the contrary.

What did the settlement agreement say?

Ex Gratia Payment + Tax Free Allowance Question

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