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Tax refund for ex gratia payment.

Tax refund for ex gratia payment.

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Does anyone know in what circumstances s.401, ITEPA 2003 applies and whether it would be relevant where (1) an employer and employee agreed to a termination of the contract of employment (2) on payment by the employer of £8,000 ex gratia to the employee (3) but HMRC is now refusing to make a refund to the employee. Any comments, please?
John Wright

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By AnonymousUser
07th Apr 2009 14:46

Thanks guys

Dennis - the employer suggested the figure and that it would be tax free - the employee said ok I'm happy with that. Not sure if the employer had leagal advise of if he just thought I can do that.

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By lawmaniz
06th Apr 2009 19:08

Ex gratia payment - taxable?
A case in which an ex gratia payment was held not to be taxable was:
Resolute Management Services Limited and Haderlein v HMRC (2008) Spc00710;
heard by Special Commissioner Malcolm Gammie, CBE, QC. Sitting in public in London on 10 April 2008.

Mrs Haderlein was given an ex gratia payment 'for doing the right thing' by declaring her job redundant. The question was whether the ex gratia payment was taxable as earnings? No. Whether taxable as a termination payment? Yes.

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By flurrymc
06th Apr 2009 16:07

"agreed"
Quote, “an employer and employee agreed” – if they agree then there is on the face of it an agreed variation of the contract, which will make the payment contractual, and therefore taxable.
It is possible for a payment, in such circumstances, to be made tax free, but only if the employer and employee enter into a compromise agreement – to be valid the employee would have to take independent legal advice, and the agreement would have to be signed by the employer, the employee and the employee’s legal advisor.

Anon, similar answer, who “agreed” that the payment was ex gratia.

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By BigBri
06th Apr 2009 14:54

S401 ITEPA 2003
EIM02100 and links give some guidance.

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By AnonymousUser
05th Apr 2009 11:37

Same boat
Can anyone answer this question as a friend of mine is in the same boat. Payment was agreed as ex gratia but now their accountant has said it needs to go through payroll and therefore taxed.

Normal one month notice contract no contractual termination pay and not made to anyone else. Notice not worked.

Any adivce would be appreciated.

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By lawmaniz
30th Jun 2008 12:31

Ex gratia payment on termination.
The payment was ex gratia because there was no contractual or statuory requirement for it to be made upon the termination of the contract of employment.

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Euan's picture
By Euan MacLennan
28th Jun 2008 14:35

I am confused

1. If "an employer and employee agreed to a termination of the contract of employment on payment by the employer of £8,000", how is it "ex gratia"?

2. If the employer thought that it was an ex gratia tax-free termination payment, why did it deduct the tax that the employee is now claiming to have refunded?

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