I worked for a very small practice - just 6 employees. On 31 March the boss said he had financial difficulties & could no longer pay me. He asked me to leave immediately.
My employment contract stipulated a 7 day notice period. He agreed that I would not need to work the 7 day notice period & as a gesture of goodwill he would pay me up to the end of April.
Sure enough, he paid me as normal on 30 April & issued the P45. However, I believe that he should only have taxed the element of the payment relating to the 7 day notice period - the non contractual element of the termination package should have been paid without tax or NI deductions.
I've queried this with him - his view is that I was employed as normal up to the end of April, all be it on gardening leave. I'm not sure this is correct. The employment contract clearly states a 7 day notice period which cannot be changed unless the contract itself is changed. How can I be placed on gardening leave for longer than my notice period allows?
My view is that part of the final payment was non taxable - although I guess a formal compromise agreement should have been signed.
If he won't recalculate the payment - is it worth sending the contract & the correspondence to HMRC & ask for their view?
Replies (15)
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I can't say if taxable or not ...
... without a full understanding of the circumstances. But if you're happy that the payment should not have been taxed in full I would submit your 2015/16 tax return on that basis. It means that you'll need to wait for a refund of the tax but I'm not sure that you'd get very far in trying to get a refund out of HMRC now. Your best bet would perhaps be to try and convince your employer that he is wrong and have him make the appropriate corrections.
You need to speak to an employment lawyer
I've suggested a tax solution - but it seems that the real issue is the nature of the payment, from which the tax treatment will follow.
In order for 403 ITEPA/03 to apply, the payment ought to have been made in consideration, or in consequence of or otherwise in connection with the termination of a person's employment. So if you left on the 8th of April and were paid 22 days wages surely it would be in consideration of the termination, and would be taxable under Ch 3 and as a consequence the £30k exemption would apply. However if you worked all through April then the payment made to you is simply wages and will be taxable as normal wages.
It sounds like ...
... your employer generously gave you one months notice, instead of one week. He said he would pay your wages up to the end of April, and did. I doubt that an extended period of notice would be tax free, but you could always query the situation with ACAS.
EDIT: what date is on the P45 as your leaving date? If it is 30 April, then you received normal wages, even though you didn't have to attend work.
A matter of interpretation I think
You think he gave you 7 days notice, the ex-employer thinks he gave you 1 months notice.
Garden leave still counts as employment. You have benefited from 1 months pay instead of the minimum 7 days.
From your post, it doesn't seem like you were dismissed unfairly. Admittedly, your post is lacking detail though.
If you were unfairly dismissed then that is a matter for an employment tribunal to decide and has no bearing on the tax consequences on your payments to date.
I addition to this, if you were only entitled to one weeks notice, then one can presume you have been employed less than 2 years by this employer. If this is the case, then you have no claim for unfair dismissal.
I hope you aren't going to rely on this employer for a reference because with the attitude you have you will be lucky to get one.
Advice
A lot has been said as a matter of opinion on attitude and gratefulness etc. all of which is irrelevant to your query. The only parties that can give you the factual advice you're seeking is ACAS and/or HMRC. ACAS will be able to clarify the nature of the employment/payment ad HMRC can clarify the tax treatment.
I'm tending to agree with cheekychappy
Even if you were an additional-rate taxpayer (which I assume that you are not, given that you are not required to file tax returns) you are still better off than you ought to be. If I were your ex-employer and you were insisting that I stick to the letter of the contract, guess what I'd do - I'd withdraw my gesture of goodwill and sue you for the payment made in breach of that contract.
If you want to pursue the matter, I've already given you a solution - tell HMRC that you want to file a tax return.
And that is my goodwill exhausted for the day.
Take it up with HMRC
He will no longer have the money, he will have paid it over to HMRC. If you genuinely think that the tax was not due, reclaim it from them. Unless you have something in writing specifying what the final payment covered, pursuing this further with your employer is a waste of everybody's time. Verbal agreements aren't worth the paper they're written on.
I know what I would do if I were your former employer if you continued to hassle him over it. I'd reconsider my generosity to an ex-employee when I was having financial difficulties. You might find any recalculation not in your favour. Again, with the only thing in writing being an entitlement to 7 days notice you'd struggle to contest that.
So this is about whether you are entitled to redundancy and whether the payment falls within the tax free sum. All this depends on what the payment is for. Your notice pay would not be tax free and neither would any accrued holiday pay. You have not set out enough information for the answers to be straight forward and like so often on this site when there is uncertainty the responses are not always kind/positive. ACAS is a good starting point.
Surely your employer would simply say the notice period started 24th April and your employment ended 30th April. You had the luxury of one month off Gardening Leave, very generous. If you have worked there less than 2 years, you have even less ability to contest it.
Settlement Agreements are technical and need to be drawn up/agreed through solicitors incurring legal costs on both sides which wouldn't help either of you.