Ex gratia payment

cazmarb

Would an ex gratia payment of £5000 to an employee be taxable and subject to NI contributions. It is a one off payment as recognition of outstanding work

MarieNoelle

Recognition for outstanding work - sounds to me like the employee received the payment by reason of his employment so would be taxable as earnings.
See Employment Income Manual here.

reader

What point of view are you asking this question from?

The accountant of an employer who is asking you for the tax treatment of 'ex gratia' payment?

Or the accountant of the employee whose tax return that you are doing?

cazmarb

Employer point of view

MarieNoelle

reader said:

What point of view are you asking this question from?

The accountant of an employer who is asking you for the tax treatment of 'ex gratia' payment?

Or the accountant of the employee whose tax return that you are doing?

Would you argue the treatment would be different?

cazmarb

No I think I'm right about being taxable and NIC but check wanted to check

MarieNoelle

Sorry I was quoting @reader and my question was to him. Just trying to see whether I missed something. :-)

reader

MarieNoelle said:

reader said:

What point of view are you asking this question from?

The accountant of an employer who is asking you for the tax treatment of 'ex gratia' payment?

Or the accountant of the employee whose tax return that you are doing?

Would you argue the treatment would be different?

I had a similar issue to the OP a few years ago.

However it was from the point of view of being the accountant of the employee receiving a terminal contractual payment (rather than the point of view of the accountant of the employer having to think about 'to PAYE or not to PAYE').

My employee client wanted to claim the £30k ex gratia allowance (on 31 January!) however rather than wasting time looking at all the ex-gratia rules I just told my client that the employer had made the decision to PAYE it and that's the end of it. If you want it to be non-taxable you need to go back to the employer (not me) as it is an employer PAYE compliance issue.

I just didn't want the OP wasting his time with an employee if the employer has already consulted their accountants (KPMG were the auditors for the employer in my case) and decided to PAYE it.

Consequently, in other words, I agree that it wouldn't make any difference. Although I would much rather prefer to deal with this from the employee side of things (rather than the employer side, as ultimately the employer is responsible for the tax calculation). Although I think you are correct, i.e. payment for services and therefore PAYE/NIC'able. I'm sure if the OP calls HMRC's employer helpline HMRC will agree too!

MarieNoelle

Thanks @reader for clarifying!