£3000 ex gratia net post tax payment.. means?

Is it 3k tax free, is it 3k after tax, is it 3k taxed

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I'm after some help as the wording is confusing. This is a bonus payment the company are making. However no one is really sure if it's being taxed or not.. ex gratia generally means tax free.. help please

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paddle steamer
27th Jul 2022 10:26

I think (albeit on very little evidence, so could be very wrong) that it means someone will receive £3k net extra through payroll so the £3k net will need grossed up and the gross will require to be put through payroll to allow for the tax and NI that will then be deducted.

Calling something ex gratia does not make it a tax free payment (otherwise I would work for minimum wage and my employer would make a large ex gratia payment to me every year)

Thanks (4)
By Hugo Fair
27th Jul 2022 10:27

Ex gratia = 'Latin for "by favour", and is most often used in a legal context. When something has been done ex gratia, it has been done voluntarily, out of kindness or grace. In law, an ex gratia payment is a payment made without the giver recognising any liability or legal obligation'.

So, it's not true that "ex gratia generally means tax free".

Whether or not the payment is taxable will depend on rather more than this rather vague label ... the usual rules pertaining to the nature of & reason for the payment will apply.

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By Bobbo
27th Jul 2022 10:33

payments are often described as ex gratia when it is a termination payment above the employee's statutory or contractual entitlement, and so are often tax free in line with the rules on such payments.

but you refer to a bonus, which suggests continuing employment and so not within tax rules on termination payments. the description as ex gratia perhaps is merely as there is no formal employee bonus scheme in place.

you should clarify what the company is trying to achieve. as DJKL says, if the intention is that the employee receives an additional 3k net then a grossing up is required to take account of tax, NI and possibly student loan deductions.

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Replying to Bobbo:
By Hugo Fair
27th Jul 2022 10:47

And since the employer appears fond of flinging around Latin phrases that serve a legal purpose (in this case probably to ensure that the payment, whatever it is for, is not setting up some precedent for future repeats) ... it's worth noting that any payment of a 'Net amount' should be accompanied by a disclaimer.

IANAL but this should indicate that the employee *may* still find themselves personally liable for additional tax, as the employer cannot be certain of all aspects of the taxpayer's circumstances outside of this employment.

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By Macca2504
27th Jul 2022 10:44

The payment is being made as a bonus for re arranging a holiday period to have later in the year. Oh and it’s not being made as part of any severance or redundancy, we will be continuing employment. Sadly that’s all the info I have from the company at present. The wording they have used is very confusing.. I appreciate everyone’s help

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By Paul Crowley
27th Jul 2022 11:15

It is taxable based on your reply
Just ask whether employer want to pay £3000 taxable and NIable and pensionable or pay such sum that the net wages is £3,000 higher than usual.
Employee is being given extra wages for doing something that helps the company

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By fawltybasil2575
27th Jul 2022 12:28

@ Macca2504 (OP).

Your use of the words:-

“£3000 ex gratia net post tax payment”

in your question appear to imply that those specific words are on a particular document.

Frankly, one would need to see that PARTICULAR DOCUMENT to be able to advise, one way or the other, whether the bonus payment will be BEFORE or AFTER the deduction of PAYE, NI and Pension Contributions (prima facie “AFTER” will apply).

Agreeing to pay an employee on a “Net” basis is potentially a very dangerous road to go down since, especially given the normal cumulative nature of the PAYE system, the effect can be grossly unfair on either the employer or employee if there has been a recent, or will be imminently, material change in the PAYE Coding.

Indeed the employee could potentially (by contacting HMRC) manipulate his PAYE Coding so as to improperly inflate his Gross Pay (with potential legal consequences, if the employee does so, to boot).

If you could post (suitably redacted) the exact wording of the relevant part(s) of the "document" at issue, indicating also the title of that document, this may assist in determining the quantum of the bonus to which the employee (presumably your client) will be entitled.


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By Tax Dragon
28th Jul 2022 08:55

Want to know what the person who wrote it meant? Ask the person who wrote it.

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