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Are Termination payments to a butler/cook taxable?

Additional sums of £40653 and £27900 were included in month 12 2016/17. Employment ceased on 23.5.17

Husband and wife team in a large house of a large country estate (which eventually sold for in the region of £28,000,000). Following the death of the owner the property eventually sold approx two years later. During the period from death to sale both were retained, as were the housekeeper and gardening staff etc. Although contracts have not been seen, the entries on the March payslips were marked as Gratuities and fully taxed, including at higher rate. Both sums were the equivalent of one years salary. I will be grateful if readers can advise whether the first £30,000 of the butler's payment and the full amount paid to his wife could be exempt and should have been outside the scope of tax. Neither were employed by the purchaser who did not require their services. My inclination is to advise that the Contracts of Employment be found and taken for advice to a solicitor familiar with this type of situation.

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By mrme89
07th Dec 2017 19:31

In the above information, it looks like these employees were protected under TUPE, but as their roles were now redundant, their contracts were terminated and they were both compensated.

I’m going to go for non taxable based on the above info.

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to mrme89
07th Dec 2017 23:55

You dud very well to glean all that with no paperwork.

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By mrme89
to Portia Nina Levin
08th Dec 2017 07:36

In all my years on Aweb, I’ve never been privy to any paperwork.
On a snippet of information, there isn’t much we can do such as make an assumption here and there.

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07th Dec 2017 20:03

Since the employer thought PAYE was due, it's going to be an uphill battle getting it back, if that's the intention.

It's not an exemption. It's a charging provision to catch stuff that would not otherwise be taxable. Just happens not to catch the first £30,000. So the question you have to answer is: why would payments received two months before the employment ceased not be taxable?

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to Tax Dragon
08th Dec 2017 00:07

I don't understand the relevance of the timing in determining what the payments are/aren't?

It's no more relevant to a correct analysis than the new "employer's" treatment, which could be completely incorrect. I've seen firms of accountants fuch this up quite royally.

The question you have to ask in relation to any payment, is what makes it taxable. If the answer is nothing, then it isn't taxable. We've been here.

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08th Dec 2017 00:09

Either the payments arise under contractual obligations - which could have been varied since the death of the former owner - or they didn't. If they did, the payments are earnings, and taxable. If not, then you need to consider what else they might be.

In that analysis remember that a payment in lieu of notice that is contractual is taxable as earnings, and such payments can be implied into the contract by notorious custom.

Candidates for what else the payments might be are: employer-financed retirement benefits (taxable), payments for restrictive undertakings (unlikely, but taxable), or something else. There's likely to have been some paperwork in at least the first two cases.

If it's something else, it's likely to be connected with the termination, and is taxable to the extent that it exceeds £30K, and isn't (currently) NICable. There's a lot of work to do before you can get to that point though.

Until the other (fully taxable) possibilities have been ruled out - for which you have not yet obtained sufficient information - we're all just watering the breeze, quite frankly.

What do people think if they actually arise by operation of the deceased's will, for instance

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By rbw
to Portia Nina Levin
11th Dec 2017 10:43

Portia Nina Levin wrote:

...

What do people think if they actually arise by operation of the deceased's will, for instance

Nice way to round off an excellent reply. (I resisted the temptation to quote the late Dick Emory.)

I'm not aware of any cases or HMRC statements on the application of the test of "mark of personal esteem or appreciation" to testamentary gifts. Ditto the benefits code. But I think I'd start by looking at what, if anything, other employees received in the hope of seeing the couple were exceptional.

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08th Dec 2017 09:36

Thank you all for your replies. Both are now searching for their Contracts of Employment without which, I agree, no further progress can be made.

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08th Dec 2017 10:21

Obviously without knowing the full facts, I can't say whether or not it should be taxable but the employer's treatment is irrelevant and doesn't affect the 'taxability' of the payment. I've recovered tax in similar circumstances on more than one occasion. Employers often err on the side of caution.

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08th Dec 2017 11:52

I think looking for/at the contracts is, for once, a somewhat fishy exercise. Does no harm, but may come up smelling of red herring. Fundamentally, a payment does not have to be contractual in order to be taxable (by which I mean, taxable without recourse to rules relating to retirement schemes or by virtue of s403). These days, a payment does not even have to be made in order for employment tax to arise (Part 7A is, to my mind, profoundly iniquitous, but it’s there in black and white). I forget the old words – something like “any emolument, salary, fee, wage, perquisite or profit whatsoever” – but there’s not much falls outwith. If the payment (contractual or otherwise – post employer’s death or otherwise, during employment or otherwise) is for performance of an employment [ie, for anything the employee has done qua employee], it’s taxable as earnings of the employment.

One reason (to answer my own question) why it might not be taxable (without foresaid recourse) is because it does not relate to what the employee has done. I’m struggling to see any other reason.

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11th Dec 2017 10:19

would this not be akin to the recent footballer terminations of contract where, in argument, the workers were being paid for 'not working'?

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11th Dec 2017 10:23

Did the 'estate' employ the pair?

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12th Dec 2017 14:35

I had argument with an employer back in 2000 about how my redundancy letter was worded. The letter said I would get a lump sum pay-off (a lot less than £30,000) on 1 April PROVIDED I didn't leave the company before 1 April. The proviso meant that the lump sum wasn't a tax-free pay-off for losing my job. It was simply bonus for staying on until 1 April and that made it fully taxable. A subtle but tax painful difference. Alan OK

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to Alan Wright
14th Dec 2017 08:49

This may well have been the case.

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