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  • FIRST POST
    • Keen_Investor
    • By Keen_Investor 10th Jan 18, 6:03 PM
    • 10Posts
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    Keen_Investor
    Ex Gratia Payment + Tax Free Allowance Question
    • #1
    • 10th Jan 18, 6:03 PM
    Ex Gratia Payment + Tax Free Allowance Question 10th Jan 18 at 6:03 PM
    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 :-)
Page 1
    • BoGoF
    • By BoGoF 10th Jan 18, 6:20 PM
    • 3,216 Posts
    • 2,538 Thanks
    BoGoF
    • #2
    • 10th Jan 18, 6:20 PM
    • #2
    • 10th Jan 18, 6:20 PM
    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
    • By Keen_Investor 10th Jan 18, 6:33 PM
    • 10 Posts
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    Keen_Investor
    • #3
    • 10th Jan 18, 6:33 PM
    • #3
    • 10th Jan 18, 6:33 PM
    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.
    Originally posted by BoGoF
    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
    • By Dazed and confused 10th Jan 18, 6:52 PM
    • 2,648 Posts
    • 1,268 Thanks
    Dazed and confused
    • #4
    • 10th Jan 18, 6:52 PM
    • #4
    • 10th Jan 18, 6:52 PM
    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
    • By Keen_Investor 10th Jan 18, 6:55 PM
    • 10 Posts
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    Keen_Investor
    • #5
    • 10th Jan 18, 6:55 PM
    • #5
    • 10th Jan 18, 6:55 PM
    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
    • By Tom99 10th Jan 18, 6:56 PM
    • 2,261 Posts
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    Tom99
    • #6
    • 10th Jan 18, 6:56 PM
    • #6
    • 10th Jan 18, 6:56 PM
    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
    • By BoGoF 10th Jan 18, 7:52 PM
    • 3,216 Posts
    • 2,538 Thanks
    BoGoF
    • #7
    • 10th Jan 18, 7:52 PM
    • #7
    • 10th Jan 18, 7:52 PM
    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?
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