Potts & Co - Accountancy & Business Advice

Termination Payments

By | iNCOME tAX, Personal Tax, Potts & Co Accountancy & Business Advice News

If an employment contract is terminated after 5 April 2018, the £30,000 tax-free cap on a payoff does not necessarily apply in full. Any payment made on termination of the employment needs to be broken down into its elements to test which parts may be covered by the tax-free amount.

Any pay treated as employment income is taxable and only the residue of a termination award can be covered by the tax-free amount. There is a complicated formula which works out what is treated as employment income. This takes into account the individual’s basic pay for their last pay period, any contractual pay in lieu of notice and how long their normal pay period and notice period were.

Any statutory redundancy payment received must be deducted from the tax-free capped amount. The previous exemption for periods spent working overseas no longer applies.

We can help you calculate the taxable element of any termination payments you need to make.

Potts & Co - Accountancy & Business Advice

Income Tax Calculations

By | HMRC, iNCOME tAX, PAYE, Personal Tax, Potts & Co Accountancy & Business Advice News

Every year HMRC reconciles taxpayers’ tax liabilities to the tax reported as paid for the individual via PAYE. This is happening now for the 2017-18 tax year.

If the calculation for your tax position shows tax owing, or a tax repayment due, you should receive a copy of the calculation on a form P800. If you are newly retired and have tax to pay you may receive a simple assessment form PA302. In this case, the tax will be payable by 31 January 2019.

If you complete a self-assessment tax return each year you should not receive a tax calculation on a form P800 or PA302, as all your tax should be dealt with on your tax return. However, sometimes the HMRC computer does not link the PAYE record to the self-assessment return, so duplicate tax calculations are issued. If you receive a form P800 or PA302 for a year for which you have submitted a tax return, please contact us immediately.

If you have other income such as rent, dividends or interest, those amounts may be estimated on the P800 calculation, so check the figures carefully against your bank statements. HMRC often uses estimated figures of pension contributions or charity donations based on what was paid in previous years. It is important to check that any tax relief given for such payments relates to the correct year to avoid underpaying tax.