Lump sums,redundancy and compensation payments

When dealing with lump sums, redundancy and compensation payments great care needs to be exercised. The reason behind this is that this type of income will not necessarily be taxed as normal employment income.
Up to the first £30,000 of any compensation payment can be paid to you without deduction of tax if it is made in connection with the termination of your employment. This also applies to statutory redundancy payments. This tax exemption applies whether the payment is made as a result of an unfair dismissal claim or for breach of contract.
In order to qualify for compensation for loss of office relief, strict criteria must be met.
For instance, if your contract of employment gave you a right to compensation on ceasing to be employed or payment in lieu of notice (i.e. the employer pays in lieu of notice instead of the employee working the notice period), then the lump sum you receive will be taxable under PAYE scheme, regardless of the amount.
Also, even if the contract says nothing about pay in lieu of notice but there is an expectation of payment because it has been routinely paid to others, that constitutes an implied contractual term and the payment will still be liable to tax and NICs.
HMRC often challenges this aspect, trying to prove that the payments were contractual in nature therefore they need to be fully taxed.
Very important to remember is that the limit of £30,000 relief relates to each employment but employments with employers under common control only count once. If a payment was received in the previous fiscal year for the same employment but the relief was not used, than the balance can be claimed against any relevant payments in a subsequent year.
Some employees with redundancy payments that exceed £30,000 choose to pay some or all of the excess into their approved occupational pension scheme. As long as the payment is within the scheme's rules, it has no liability for tax or NICs.
As different rules apply to different lump sum payments connected with an employment it is very important to seek advice from professionals like Taxfile's tax accountants in South London and Exeter. They will make sure that your circumstances have been carefully considered before submitting your tax return to HMRC.

More surprises in store from the Taxman

People who run their business from home could find a big surprise in store for them from April next year. As the government is trying to increase the hmrc' s power, the taxman will be allowed to turn up on the taxpayer's doorstep, unannounced demanding to inspect his or her records, assets and premises.
These new powers will give the Revenue the right to visit business premises to demand access to records without warning. That could include your home if that is where you work.
Nonetheless taxpayers could turn the taxman away at the door. However, they could be punished if they do, as the government is threatening to introduce tough new penalties for interrupting such an inspection.
The reason behind all this is that the HMRC has been set tough targets to bring in more tax in a shorter period of time.
Among other proposals,it is worth mentioning the new powers to enable the taxman to obtain information more easily from third parties such as banks and building societies.
Also under the new rules, taxpayers could be fined for carelessness even if their accountant made the mistake. However, if the taxpayer can provide evidence that he or she took reasonable care to ensure that the return was accurate, such as checking it before submission, the penalty could be cancelled.
Finally, another important proposal is that taxpayers will be able to pay their bill by credit card from April 2009.
If you need to know more about the Taxman's new powers, Taxfile's tax accountants in Exeter(Devon) and Tulse Hill (South London) would be more then happy to offer you a free consultation.