Redundancy or taxable pay?

Posted: 1st March 2013

A salesman has failed to convince the first-tier tribunal that a sum he received on termination of his employment was effectively a redundancy payment the first £30,000 of which should have been treated as free from tax. The tribunal ruled that he had been entitled to the money under the terms of his employment contract and that Her Majesty’s Revenue & Customs (HMRC) were therefore correct to consider it a taxable payment in lieu of notice.HMRC

The taxpayer had argued that the £38,522 payment, which was described as ‘ex gratia’ in the compromise agreement that ended his employment, was in respect of redundancy in that he and the whole of his sales team had lost their jobs at the same time, their roles no longer existed and they had never been replaced.

Dismissing his arguments, the tribunal noted that he had received no more than his contractual entitlement to six months’ pay in lieu of notice. The compromise agreement made no mention of redundancy and was to be read in the context of his contract of employment. Whatever label the taxpayer might put on the payment, he had received it as part of his remuneration for his services...

These agreements need to be carefully structured and drafted. We have the expertise to deal safely with them. Mail or call us for assistance.