Termination Payments on Account of Disability

The Employee received a termination payment that includes a payment on account of disabilty

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Does anyone have experience on how to claim income tax back from HMRC on this termination payment on account of disability? What documentation does HMRC ask for to be able to recover the income tax due to disability payment?

Replies (9)

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By David Ex
14th Mar 2024 16:18

I’d imagine you’d need to contact HMRC and provide evidence of tax deducted and why you believe that should be refunded. Definitely worth a try.

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By Hometing
14th Mar 2024 16:28

If it genuinely should be exempt under s401, then I would have expected no tax to have been deducted at the time. Not happened?

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Replying to Hometing:
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By Gab_ok
14th Mar 2024 18:15

It did not happen. However the employer advised the employment lawyer that this was a possibility and should be explored by the accountants as to what documentation is needed to ask for the tax reimbursement.

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Replying to Gab_ok:
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By David Ex
14th Mar 2024 19:12

Gab_ok wrote:

It did not happen. However the employer advised the employment lawyer that this was a possibility and should be explored by the accountants as to what documentation is needed to ask for the tax reimbursement.

Not sure what your role is in the matter but I'd avoid getting involved unless you are an appointed practising accountant. The recipient needs tax advice from a paid adviser or, possibly, here if they can't afford: https://taxaid.org.uk/.

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Replying to Gab_ok:
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By FactChecker
14th Mar 2024 19:13

Sorry ... "the employer advised the employment lawyer"? Is that a typo or are you saying the ER tells the lawyer (whom ER has presumably appointed) what to do?

Should you (in whatever unknown capacity) wish to do some research, you could do worse than start at https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim13610 ... and then follow the breadcrumbs to further pages.

But as I see David has also pointed out ... the recipient really needs professional advice (not just public opinions) that can be based on the precise details of the case - including whether the disability arose as a direct result of the employment.

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By Paul Crowley
14th Mar 2024 19:29

There is a recent tribunal case on this
Expect resistance, after all someone made the decision to tax it. Who is trying to separate the funds into different pots?

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Replying to Paul Crowley:
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By Gab_ok
14th Mar 2024 19:55

The Employer paid the Termination Payment to the Employee and withhold tax. In interest of time the Employer paid the employee before applying for the tax exemption on account of disability. The Employer (HR) advised the employee’s lawyer that there was an opportunity to recover income tax due to the termination payment being based on disability. So I wonder what documentation is needed in this case : i.e. medical? Termination Agreement Stating the Termination Payment is due to the Disability of the Employee? Maybe someone has any experience with this…

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Replying to Gab_ok:
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By David Ex
14th Mar 2024 21:03

Gab_ok wrote:

Maybe someone has any experience with this…

I refer you to the answer I gave earlier.

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Replying to Gab_ok:
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By FactChecker
14th Mar 2024 21:48

Sorry, but none of this makes sense ...

1. "The Employer paid the Termination Payment to the Employee and withhold tax. In interest of time the Employer paid the employee before applying for the tax exemption on account of disability."
* ER must apply the legislative rules to any payment under PAYE (which this appears to be) ... they don't get to 'choose' whether or not to deduct Tax purely on the grounds that it suits them or the employee so to do.
* What do you (or they) mean by "applying for the tax exemption on account of disability"? Is there a specific name for the form/process for this claim?
* Also, the phrase 'before applying' suggests that ER already has (or intends to) make that claim - so how's that progressing?

2. "The Employer (HR) advised the employee’s lawyer that there was an opportunity to recover income tax due to the termination payment being based on disability."
* As before, I fail to understand why anyone is giving advice to (as opposed to receiving it from) the employee's lawyer ... even more now that you've explained that you meant the EE's (not the ER's) employment lawyer.
* Either the deduction/repayment of Tax was the responsibility of the ER (in which case they should sort it out), or it's a post-employment option for the individual taxpayer (in which their employment lawyer should sort it out).

For those reasons, let alone the fact that you've failed to declare your role in this, there is nothing more that can be usefully added here.

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