Newsletters
Autumn News
Pay In Lieu
In the current economic climate more people than usual are having to think about the tax consequences of losing their job. The sack is bad enough without having an argument with the taxman. It's well-known that £30,000 of a golden handshake is supposed to be tax-free, but it's less well-known that HMRC aren't always willing to accept that the exemption applies.The rule allows a payment for breach of contract to fall outside tax - "here's thirty grand to clear your desk and go quietly, never mind your employment rights". If the contract describes the payment as something that will happen when the job ends, it isn't exempt at all - it's as much part of the contractual, taxable pay as the monthly salary and the annual bonus. This was applied recently to a payment in lieu of notice - the company had the choice in the contract to give three months' notice or make a payment in lieu, and the payment was therefore taxable.
Once a contract's been drawn up, it's usually hard to change the tax effect of it. It's still worth discussing because an unexpected tax charge is even more unwelcome than one you know about. If you are involved in redundancy - on the receiving or the giving end - and you want to discuss the tax consequences, we will be happy to advise you.