Day: May 20, 2012

£30,000 Tax Exempt Ex Gratia Payments

Ex Gratia payments are normally linked to Compromise Agreements, see example

http://www.compromiseagreementslimited.co.uk/templates/template

The use of Ex Gratia payments in relation to terminating employment need to be handled carefully as highlight in this article

http://www.payandbenefitsmagazine.co.uk/pab/article/legal-comment-employers-warned-about-ex-gratia-payments-12322121

Getting the terminology right is critical, Earnings, Wages, Holiday Pay, Bonuses, Payment in Lieu of Notice are likely to be taxable. Ex Gratia payments won’t be, if the following apply:

The first £30,000 of a payment which is paid in connection with the termination of employment is tax free, as long as it is not otherwise taxable as earnings. Any excess over £30,000 is subject to income tax as normal, but is not subject to any NICs. Two or more payments made in respect of the same employment, or different employments with the same employer, are aggregated for the purpose of the £30,000 limit.

Ex gratia payments, made where the employer is under no legal obligation to do so, and awards from the Employment Tribunal in respect of wrongful or unfair dismissal, can fall within the £30,000 exemption as can payments made on redundancy whether statutory, non-contractual or even contractual.

http://www.out-law.com/en/topics/tax/employment-tax/taxation-of-termination-payments/

Compromise Agreements can sometimes be a good alternative to formal Disciplinary or Redundancy processes.

steve@bicknells.net

HMRC Tax Targets and Campaigns

HM Revenue & Customs’ (HMRC’s) campaigns provide opportunities for people to voluntarily put their tax affairs in order. They do this by identifying a group to target and gathering information and intelligence that can be used to encourage and influence that group to come forward. Once a campaign closes, HMRC then uses that same information and intelligence to follow up with action that can include criminal investigations, aimed at those who choose not to pay what they owe.

http://www.hmrc.gov.uk/campaigns/news.htm

As a result of a recent campaign a Plumber in Ringwood, Hampshire was sentenced to 4 years in prison, follow this link to read the full story

http://www.accountingweb.co.uk/article/hmrc-secures-plumber-conviction/527556

Accountingweb have been tracking the campaigns, so far 77,616 checks have been carried out and £36.3m tax recovered

http://www.accountingweb.co.uk/article/hmrc-task-force-tracker/521073

So which campaigns are coming up in the next few months:

  1. Direct Selling – aimed at those selling products to customers away from retail premises, this includes selling door to door, at parties or to friends and relatives. Sellers are sometimes called ‘Agents’.
  2. Missing Tax Returns – aimed at Individuals who have been requested to provide or should be submitting Self Assessment Returns but haven’t http://www.hmrc.gov.uk/sa/need-tax-return.htm (Company Directors are required to submit returns)
  3. Trade Campaigns – aimed at those working in the Home Improvement, Maintenance and Repair sectors
  4. e Marketplaces – aimed at those who sell on line (such as online auctions) and don’t disclose their income http://www.hmrc.gov.uk/campaigns/emarket.htm

If you are in one of these target groups, now is time to makesure your tax affairs are in order.

steve@bicknells.net