What type of payment is this?

What type of payment is this?

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Ltd Co owned 50/50.
The directors/shareholders fall out and one, who was an employee leaves, signing her share over to the other. She leaves with a cheque for £3500 in full and final settlement for leaving the company.

What type of payment is this? The shares have no value at present, but would this be a receipt for sale of shares?

Thanks.

Faerie Girl

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By AnonymousUser
30th Jun 2008 10:22

It shouldn't be taxable on the recipient...
... because the government can't be trusted to spend taxes properly!

No? Not a good enough reason?! ;-)

In which case, between what you've said and what Mr Tolley's has said, I'm satisfied that it's an ex-gratia payment, and as it's under £30k it's exempt.

Thank you very much for your help :)

FG

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By skylarking
27th Jun 2008 18:09

Not taxable on the recipient?
I wonder why you think the recipient should not be taxed?
Just because the company may be entitled to make the payment gross, it doesn't necessarily absolve the recipient from paying tax on it.

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By skylarking
26th Jun 2008 17:28

Two transactions
I think there are two separate things happening here and its best not to try to lump the two together.
1. Purchase of shares by one director from another (at par). You have established that the shares are not worth more. Was it part of a shareholders agreement. I am just thinking you want the paperwork in order, as ever.
2. Payment of £3.5k by the company to the departing director. Has this been minuted - damn paperwork again. Presumably, there was no contractual entitlement to the cash, otherwise the normal deductions would apply.

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By AnonymousUser
26th Jun 2008 16:52

Thanks
Thank you Fellowcraft and Andy.

I believe it could be classified as ex-gratia. It was more to do with ownership of company than directorship (and therefore employment). It was not specifically a payment for shares.

Can I take it, then, that this has no NI or PAYE tax consequences and is simply £3500 gross paid, not taxable on the recipient and a deductable expense in the company's books?

Thank you.

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By skylarking
26th Jun 2008 16:02

Try this link
www.xenos.co.uk/english/PDF/techsheets/new/redemption%20of%20shares.pdf

Edit. Sorry, I misread and thought the company had purchased.

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By User deleted
26th Jun 2008 16:01

Yes
If she sold her shares for £3,500 then thats that.

Unless she signed the shares over at par (as you have valued them and they are only worth par) then it could be reclassified as an ex-gratia payment & be deductible.

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