An employer would like to make a payment to an ex employee on his retirmement.
How can the payment be made to ensure it falls under S148, safeguarding the £30000 exemption, rather than being taxed in full under S19?
As in understand it, a payment is charged under S19 if it is made in return for services, so if a payment is made on retirement:
a)which is non-contractual
b)of which there was no 'reasonable expectation' of receipt, i.e. was not implied or habitual
c)and is not specified as being in recognition of service
it should not fall within S19, but instead under S148, so the first £30,000 received will be exempt?
But by its nature, it seems extremely difficult to prove that a payment on retirement is not in recognition of services, so this could leave the payment subject to S19.
It does appear this be achieved, by delaying the payment until after termination of the employment, how safe is this?
Another problem is that since the issue of SP 13/91 the Revenue seem to have looked more closely at ex-gratia payments (or retirement and death) and have often regarded these as 'relevant benefits' as defined in S612:
As a result, the payments have been deemed as arising from an 'unapproved retirement benefits scheme', leaving the income taxable under S596A and the £30K exemption not available.
SP1/94 confirms that genuine redundancy payments will be taxable under S148, but that payments not genuinely made to compensate for loss of employment through redundancy may be liable to tax in full
The Revenue's own manuals highlight the importance of recognising the principles determining which section applies, due to the exemptions available under S148.
SE2100 confirms that the term 'compensation for loss of office can be applied to inappropriate payments' and this point is then expanded on further, with guidance on the types of payments that could be regarded as contractual and the most common types of payments taxable in under S19
Any help will be gratefully received!