I have been asked to look at this by a client who has received a letter from the insurance company that has been making her payments for the last few years, since she has been unable to work through illness. There seems to be some confusion about how much of the £200k payout is taxable. Initially, the insurance company advised the first £30k would be tax free, then she was advised she could "approach HMRC and ask for the lump sum to be paid tax free".
I have looked at HMRC's Employer Further Guide to PAYE and NIC CWG2(2011) and, on page 101 it indicates that lump sums to compensate for loss of employment through disability, injury or ill health can be paid wholly tax free. This appears to be what the insurance company is referring to. However, the guide suggests that it is the payer's responsibility to contact HMRC to confirm, see "Where such a payment is over £30k, you may wish to agree with us before you pay the whole amount tax-free" This was also the subject of a query from robvaughan on 30/6/10
My client and I are rather confused! It will obviously make a huge difference to her if the payment is not taxable.
Thanks Marion, that sounds like a good plan. I take it that POAT does not apply if 100% of one spouse's half share is sold for market value because FA 2004 Sch 15 para10(1)(a) applies where the disposal is of the whole of the taxpayer's interest in the property? The transaction would then be treated the same as if it were a commercial equity release scheme.
Our client received the tax repayment due to her in two separate cheques. One following HMRC's calculation based on estimated figures (issued automatically by the computer this year, I believe) with the balance coming after submission of the R40. What a waste of time and paper! Nothing new there though . . .
Most of the coding notices for 2011/12 that have been forwarded to me by clients are wrong. The most common problem seems to be where someone is over 65 but has income over £24,000 to the extent that they are usually only entitled to the basic PA. The codes include the full age related PA and I have had some trouble explaining to HMRC staff why this is wrong.
I don't know what income figures they are using but the problems with the PAYE system have obviously not been sorted as they claim. I foresee lots of tax underpayments for 2011/12!
My answers
That was what I thought but the charities will no doubt have reclaimed tax under gift aid based on her declaration. Thanks for your replies.
I have been asked to look at this by a client who has received a letter from the insurance company that has been making her payments for the last few years, since she has been unable to work through illness. There seems to be some confusion about how much of the £200k payout is taxable. Initially, the insurance company advised the first £30k would be tax free, then she was advised she could "approach HMRC and ask for the lump sum to be paid tax free".
I have looked at HMRC's Employer Further Guide to PAYE and NIC CWG2(2011) and, on page 101 it indicates that lump sums to compensate for loss of employment through disability, injury or ill health can be paid wholly tax free. This appears to be what the insurance company is referring to. However, the guide suggests that it is the payer's responsibility to contact HMRC to confirm, see "Where such a payment is over £30k, you may wish to agree with us before you pay the whole amount tax-free" This was also the subject of a query from robvaughan on 30/6/10
My client and I are rather confused! It will obviously make a huge difference to her if the payment is not taxable.
Thanks Marion, that sounds like a good plan. I take it that POAT does not apply if 100% of one spouse's half share is sold for market value because FA 2004 Sch 15 para10(1)(a) applies where the disposal is of the whole of the taxpayer's interest in the property? The transaction would then be treated the same as if it were a commercial equity release scheme.
Me too!
Our client received the tax repayment due to her in two separate cheques. One following HMRC's calculation based on estimated figures (issued automatically by the computer this year, I believe) with the balance coming after submission of the R40. What a waste of time and paper! Nothing new there though . . .
Thanks for the comments. I have advised my client to seek specialist advice and have passed on your contact details, Andrew and David.
Kathryn
Not shown
No tax is shown as having been deducted in the calculations provided. I have asked my client to check with the bank.
Thanks
Kathryn
Thanks
Thank you,
Always good to have a second opinion!
Kathryn
Me too!
Most of the coding notices for 2011/12 that have been forwarded to me by clients are wrong. The most common problem seems to be where someone is over 65 but has income over £24,000 to the extent that they are usually only entitled to the basic PA. The codes include the full age related PA and I have had some trouble explaining to HMRC staff why this is wrong.
I don't know what income figures they are using but the problems with the PAYE system have obviously not been sorted as they claim. I foresee lots of tax underpayments for 2011/12!
-- KayM