Not
surprisingly the Inland Revenue is less keen than employers on the
concept of the 'golden handshake' and the following restrictions
govern the payments that can be made tax free.
Notice
Period: If employees are paid for their notice period
this amount must be taxed even if they are not required to work
their notice. The exception is if the employer breaks the contract
and insufficient notice is given, in which case the amount paid
in lieu of notice may be tax free.
Contractual Obligations:
Any amount payable under the terms of employees' contracts must
be subject to PAYE.
Retirement: If a member
of staff is close to retirement, a lump sum may be classed as payment
from an unapproved pension scheme and so be taxable.
Payment Limits: You will
need to total all taxed and untaxed redundancy payments, compensation
for loss of office or future earnings and any award for wrongful
dismissal. Any excess above £30,000 will be taxed regardless of
the circumstances.
Please call us for individual advice if you are considering making
redundancies so that we can help you calculate what can and cannot
be paid tax free. Equally, if cash is tight and you need to work
out the minimum you can legally pay we can also help you to do this.
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