Termination payments

In a recent First-tier case the Tribunal considered the tax treatment of a businessman who was paid £123,750 on the termination of his employment. He dutifully deducted the usual £30,000 tax-free amount from this payment and declared the difference on his tax return.

Unfortunately, the termination payment was paid under the terms of his contract of employment. Payments made in this way are considered to be part of remuneration and therefore taxable in full.

The £30,000 deduction was not, therefore, available.

The case points to the need for constant vigilance when drafting contracts of employment to ensure that the £30,000 exemption is not invalidated. Even a “thank you for your services” letter can cause problems. Do seek our advice if you wish to make use of the exemption: either as an employee or employer.

Four reasons to file your Tax Return on time

Four reasons for filing your tax return on time

Late filing of your self assessment tax return for 2010-11 will be subject to a new penalty regime. The old £100 penalty has not proved to be the deterrent it was intended to be – too many tax payers are still filing late returns.

From October 2011, the last date for filing a paper return for 2010-11, four penalties now apply.

  • From day one: you will be charged a £100 penalty even if you have no tax to pay or you have paid any tax due.
  • From 3 months late: you will be charged an automatic daily penalty of £10 per day up to a £900 maximum.
  • From 6 months late: you will be charged additional penalties which are the greater of 5% of tax due or £300.
  • Over 12 months late: again additional penalties based on greater of 5% of tax due or £300. In serious cases this penalty may be increased up to 100% of tax due.

Don’t forget these penalties will be applied after 31 January 2012. HMRC will assume that you are going to file online if you miss the paper filing deadline of 31 October 2011. Under no circumstances should you post a paper return after 31 October 2011. This will trigger the new penalties.

Seek advice and file your return online before 31 January 2012.

Three reasons for paying your tax on time

Penalties for paying tax late are:

  • 30 days late: initial penalty of 5% of tax outstanding.
  • 6 months late: further penalty of 5% of tax still outstanding.
  • 12 months late: further penalty of 5% of tax outstanding.

And on top of all this:

Interest will be added to any tax paid late including interest on unpaid penalties.

If you feel that you had a reasonable excuse for not filing on time it is possible to appeal.