# Redundancy taxed in full



## prettyboybaker (27 Jan 2022)

Hi all,

My partners company are going through a round of statutory redundancies. It appears she wont get the chop this time but we expect it to happen in the near future.

She has been talking to colleagues on the package and they are reporting that the entire ex gratia payment is being taxed fully. Staff are being told that this is a result of a stipulation in their contract.

Does this seem fishy to anyone else? Also, who gets to decide which tax options they can apply to the ex gratia payment ? Surely the employee does.

Lastly what benefit might there be to the company to take this route? The only financial saving I can think of is administrative.

Whole thing seems bizarre.

Thanks


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## ClubMan (27 Jan 2022)

Any use?





						Taxation of lump sum payments
					

Lump sum payments in compensation for loss of employment are subject to tax. How is tax calculated and what are your entitlements?




					www.citizensinformation.ie
				








						How USC affects redundancy payments
					

This page explains how statutory redundancy payments are exempt from USC




					www.revenue.ie


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## misemoi (27 Jan 2022)

This happened some colleagues once. Just easier for them to tax and let the employee reclaim. Make sure your partner gets all the paperwork and revenue will make sure to refund any overpaid tax. Company will be owed er prsi as well, so it's not good for them but probably the easiest for them !!


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## Gordon Gekko (27 Jan 2022)

If it’s a contractual obligation, then it’s not ex gratia.

‘ex gratia’ literally means as a favour or with no legal obligation.

If there’s ambiguity, it absolutely makes sense for the employer to operate full PAYE etc. The risk is on the employer if they don’t as the employee could go off into the sunset with the cash, with Revenue looking to gross it up.

The “stipulation in the contract” part sounds like the problem. 

They should ask the company to foot the bill for an employment tax and legal specialist to look at the issue.

And if they refuse, and the amounts involved are meaningful, which I suspect they are, they should get their own advice.


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## prettyboybaker (27 Jan 2022)

misemoi said:


> This happened some colleagues once. Just easier for them to tax and let the employee reclaim. Make sure your partner gets all the paperwork and revenue will make sure to refund any overpaid tax. Company will be owed er prsi as well, so it's not good for them but probably the easiest for them !!


Thanks Misemoi, I'm a bit confused by the last part. Do you mean the company will owe revenue prsi ? Also, do you know if the refund is in tax credits or cash? Thanks again.


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## prettyboybaker (27 Jan 2022)

Gordon Gekko said:


> If it’s a contractual obligation, then it’s not ex gratia.
> 
> ‘ex gratia’ literally means as a favour or with no legal obligation.
> 
> ...


Thanks so much for that. I haven't seen the offer and she is currently digging out her contract so we will see. 

The company themselves have apparently labelled it an ex gratia payment but as I said I've yet to see the offer myself. 

If it is ex gratia then it does feel like bad faith by the company. Not only redundant but then having to wait till next year to claim back tax overpayment.


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## Gordon Gekko (27 Jan 2022)

Essentially, pay in lieu of notice or any kind of contractual entitlement to a payment is taxable in full.

“We’re really sorry, here’s 50 grand” is when it’s potentially tax free.

And statutory is tax free (the two weeks per year capped at €600 a week stuff).


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## prettyboybaker (27 Jan 2022)

Gordon Gekko said:


> Essentially, pay in lieu of notice or any kind of contractual entitlement to a payment is taxable in full.
> 
> “We’re really sorry, here’s 50 grand” is when it’s potentially tax free.
> 
> And statutory is tax free (the two weeks per year capped at €600 a week stuff).


Again, thanks so much. Really helpful


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## misemoi (27 Jan 2022)

Yes this was a huge pain for my colleagues...when it came around to my time they had gotten themselves in gear and were applying all the exemptions. So I got my correct net redundancy while my colleagues were still waiting for their refund !


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## prettyboybaker (27 Jan 2022)

misemoi said:


> Yes this was a huge pain for my colleagues...when it came around to my time they had gotten themselves in gear and were applying all the exemptions. So I got my correct net redundancy while my colleagues were still waiting for their refund !


Hopefully the company get their act together before it's our turn to walk the plank. Thanks for your help.


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## Clamball (28 Jan 2022)

prettyboybaker said:


> Also, do you know if the refund is in tax credits or cash? Thanks again.


Once Revenue decide you have overpaid tax the refund will either go to your bank account if you have that registered on mygov or they will issue a cheque.


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## ClubMan (28 Jan 2022)

Clamball said:


> your bank account if you have that registered on mygov


I presume that you meant myAccount?


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## prettyboybaker (28 Jan 2022)

Thanks all.

A quick update, we have found her contract and it does have a Redundancy clause, which states 1 month's salary for every year worked. It finishes this clause by saying "shall be subject to the deduction of such tax as may be required by law".

Are we goosed then? 

Apparently, this clause only appears in older contracts. 

Surely redundancy is redundancy and is taxed as such regardless of clauses?


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## Gordon Gekko (28 Jan 2022)

prettyboybaker said:


> Thanks all.
> 
> A quick update, we have found her contract and it does have a Redundancy clause, which states 1 month's salary for every year worked. It finishes this clause by saying "shall be subject to the deduction of such tax as may be required by law".
> 
> ...


My view is that you’re completely goosed.


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## Gordon Gekko (28 Jan 2022)

I’ve never seen this done, but I wonder whether new contracts could be signed?


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## prettyboybaker (28 Jan 2022)

Gordon Gekko said:


> My view is that you’re completely goosed.


Damn it. Is it worth talking to somebody like a lawyer? If so what type?

I really do appreciate your help. Thanks


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## Gordon Gekko (28 Jan 2022)

prettyboybaker said:


> Damn it. Is it worth talking to somebody like a lawyer? If so what type?
> 
> I really do appreciate your help. Thanks


If it was me, I’d play dumb, go to the company, and say “this is terrible, surely there’s a way to sort it out, should the company not get tax/legal advice from a specialist for everyone’s benefit?”

(e.g. isn’t there a PRSI saving for the employer?)


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## Sue Ellen (28 Jan 2022)

@Gordon Gekko 

Did you forget to post your reply to previous post or should I delete the quote?

Thanks,

S.E.


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## prettyboybaker (28 Jan 2022)

You are a legend. Playing dumb comes naturally.

Interestingly out of the dozen our so getting chopped, only 3 are affected by this clause. 

Part of me wonders if there is some discriminatory angle.


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## Gordon Gekko (28 Jan 2022)

prettyboybaker said:


> You are a legend. Playing dumb comes naturally.
> 
> Interestingly out of the dozen our so getting chopped, only 3 are affected by this clause.
> 
> Part of me wonders if there is some discriminatory angle.


I doubt it.

Just legacy contracts and foreign HR people not having a clue probably.

Best of luck.


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## newirishman (28 Jan 2022)

The employer needs to *properly* account for the redundancy payment - unless they want to pay full whack of both employee and employer PRSI on the lump sum!
Which I am sure that don't want do - they can't just treat it as normal income.

The contract just means that you get one month per year of service instead of just the 2 weeks statutory.


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## cremeegg (28 Jan 2022)

prettyboybaker said:


> Damn it. Is it worth talking to somebody like a lawyer? If so what type?
> 
> I really do appreciate your help. Thanks


I think that this whole thread is a little off.

The tax treatment of a redundancy payment is complex, and choices are involved.

If the payment is taxed as income under PAYE a reclaim for overpayment may be possible, but it is not necessary that the redundancy be taxed that way. There is a tax scheme for lump-sum payments, it is at the taxpayers choice, it effects future pension rights and it is complex. You need a tax accountant's advice.


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## Sophrosyne (31 Jan 2022)

prettyboybaker said:


> A quick update, we have found her contract and it does have a Redundancy clause, which states 1 month's salary for every year worked. It finishes this clause by saying "shall be subject to the deduction of such tax as may be required by law".



See this from Revenue.

Redundancy payments may be taxed under TCA 1997 s 123, but _only_ if they are not _otherwise taxable._

Payments made under any clause in a contract of service are taxable under s 112 as income from that employment.

In your friend’s case, her redundancy payment is made in pursuance of her contract of service and so taxable under s 112.

Section 123 and reliefs provided by that section, therefore, would not apply.


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## prettyboybaker (31 Jan 2022)

Sophrosyne said:


> See this from Revenue.
> 
> Redundancy payments may be taxed under TCA 1997 s 123, but _only_ if they are not _otherwise taxable._
> 
> ...


Thanks for that. I had found this "A lump sum paid under the terms of a contract of employment is taxable in full
and does not qualify for exemption or relief.", here https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-05/05-05-19.pdf, which makes this pretty clear cut that the entire thing is taxed.

They are going to make the case that their contract states 1 month's salary for every year, but for those without the contract piece, the offer is 4 weeks. This obviously works out cheaper for the company and would benefit the employees too. We are hoping they take this route as it's in everyone's best interest.


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## Peanuts20 (31 Jan 2022)

I've worked for multinationals that have specified redundancy terms in their staff's T&C's, those included an ex gratia payment for redundancy based on service years and they were never taxed fully when paid as there as specific rules around the taxation of this






						Taxation of lump sum payments
					

Lump sum payments in compensation for loss of employment are subject to tax. How is tax calculated and what are your entitlements?




					www.citizensinformation.ie
				




One thing to watch out for however is that it is badged, in writing, as a redundancy payment and not anything else.


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## Sophrosyne (31 Jan 2022)

Peanuts20 said:


> I've worked for multinationals that have specified redundancy terms in their staff's T&C's, those included an ex gratia payment for redundancy based on service years and they were never taxed fully when paid as there as specific rules around the taxation of this


The link you posted from the Citizens Information is in relation to lump sums that are *not* included in a contract of service.


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## Sophrosyne (31 Jan 2022)

prettyboybaker said:


> Thanks for that. I had found this "A lump sum paid under the terms of a contract of employment is taxable in full
> and does not qualify for exemption or relief.", here https://www.revenue.ie/en/tax-profe...ains-tax-corporation-tax/part-05/05-05-19.pdf, which makes this pretty clear cut that the entire thing is taxed.
> 
> They are going to make the case that their contract states 1 month's salary for every year, but for those without the contract piece, the offer is 4 weeks. This obviously works out cheaper for the company and would benefit the employees too. We are hoping they take this route as it's in everyone's best interest.


Best of luck in your endeavours.


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## JoeRoberts (31 Jan 2022)

Are they giving 2 payments ?

a) Statutory redundancy ( which is tax free up to certain limits regardless of contract)
b) Then a termination payment as per contract.

Or are they rolling all into B.
Many companies have "quasi contractual" redundancy packages by virtue of union agreements and precedence but this case is unusual to have it in written contract.


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## Peanuts20 (1 Feb 2022)

Sophrosyne said:


> The link you posted from the Citizens Information is in relation to lump sums that are *not* included in a contract of service.


It's not clear from the posts (to me anyway) as to whether a lump sum is being paid under T&C's or whether or not an ex gratia redundancy payment is being made. if the latter, then it should be taxed as a redundancy payment, regardless of what T&C's states. My concern for the OP here is that if the payment is not tagged as a redundancy payment by the employer, there will be tax issues accordingly.


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## Sophrosyne (1 Feb 2022)

prettyboybaker said:


> A quick update, we have found her contract a*nd it does have a Redundancy clause, which states 1 month's salary for every year worked*. It finishes this clause by saying "shall be subject to the deduction of such tax as may be required by law".


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## Gordon Gekko (1 Feb 2022)

This is like the home for the bewildered as my late Nan was wont to say…


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