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UKSolicitorJA, Solicitor
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Hi - I am being offered a lump sum payment as part of a Group

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Hi - I am being offered a lump sum payment as part of a Group Income Protection Insurance. the payment is consided as a disability related termination. I understand this is considered tax exempt. My issue is that the termination is being contained within a compromise agreement which will have a clause in it that states I will never be able to work for this employer again. When questioning why this is I am told it is because the Inland Revenue will take a dim view of it and consider it tax evation. However, surely if I am 'terminated' on grounds of ill health in one post and then go on to work with the same meployer, some time later in a different and possibly temporary post, then this is very different employment and that my lump sum payment will remain exempt from tax??
Submitted: 2 years ago.
Category: UK Employment Law
Expert:  DiverseTax replied 2 years ago.
Hi.

If the redundancy is genuine, there is no tax reason why you should not return to work for your current employer in the future especially if the new job is a different one to the original and even if the job id the original one. Much depends on the circumstances. There are no set rules and every case is look at on its merits.

Where this happens over a short period of time, the tax office can and do question the validity of the redundancy. However, most employers do not make staff redundant lightly as it can cost them alot of money. In recent years, the car manufacturers have shed staff who they have re-recruited a couple of years later and there has been no challenge to the validity of the original redundancies. Those workers who were made redundant had skills which would be expensive to teach a completely new workforce.

If the tax office challenged the employer of the validity of the tax free payment on the grounds that having re-employed you later, it was not a genuine redundancy, they could force the employer to pay the tax and nic due because they had not adhered to PAYE regulations. It would then be up to the employer to try to recover the tax and nic from you. That is why the employer is being cautious.

Alternatively, the tax office could pursue you for the tax and nic. NIC is not payable on genuine redundancy payments. Most people would not put the tax free payment at risk.

You ought to seek some legal advice which is normal in compromise agreements to see if there is anything that can be done to persuade your employer to remove the offending clause.

Let me know if you have any further questions.
Customer: replied 2 years ago.

Hello. Yes I have seen these sort of answers within the HMRC web sites. However, the issue in terms of the answer is that I am not being made redundant in that the post still exists and so I would assume it could not be regarded as a true redundancy situation and would therefore automatically be seen as 'tax evation'. My reasons for leaving will be 'ill health retirement', or some other reason to be cotained within the Compromise Agreement. However, one thing is for certain is that it own't be regarded as redundancy, and so I suspect that alters the advice you have given????

Expert:  DiverseTax replied 2 years ago.
I'm not an employment lawyer so I cannot answer that. I'll opt out and let another expert take a look.
Customer: replied 2 years ago.

Thanks. I don't feel it is an employment question as the only reason the employer is including the clause is because of the taxation issue, and of course trying to indemnify themselves against any future tax claim, by effectively removing any risk by refusing to employ me again. If I could establish that the tax man won't come after me or them, then from an employment law perspective I think everything else is ok

Expert:  UKSolicitorJA replied 2 years ago.
Hello,

Are you intending to take up employment within the group in the future?
Customer: replied 2 years ago.

There are no specific plans, but I want to keep it open as an option. I don't see why I should surrender my right of free trade with them in the future. I do not expect to return to them in any substantive post as in all honesty my health may not let me, but i am certainly capable of some short term, temprary and/or part-time and casual work, and I do not seea) why i should be denied access to this and b) to undertake this for no obvious reason ie taxation. As far as I can see there are no taxation guidance or regulations to prevent me returning, so long as it clearly isn't a fraudulent operation ie finishing a post one day, collecting some money and then returning to the same or a similar post a week later. Hope this helps a bit........

Expert:  UKSolicitorJA replied 2 years ago.
Thank you.

The payment should remain tax exempt if it is indeed a genuine disability related termination payment.

As a compromise, you may wish to give your employer an indemnity in the compromise agreement to the effect that you will pay any tax and NIC demanded from HMRC on the lump sum payment in the future.

That way, you do not give up your right to be potentially employed by the group in the future and your employer has the comfort that you will reimburse them if they are liable to pay any tax on the payment.

Hope this helps-please leave feedback
UKSolicitorJA, Solicitor
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