Plain Torque
4th Jan 2013, 15:54
Has anyone had prior experience with a UK company buying out a bond agreement and any tax implications? After being warned about tax liabilities I decided to get in touch with the taxman for some advice but things don't seem to be as black and white as I hoped. Maybe someone with personal experience might be able to make things clearer?
I gave Mr Taxman relevant information about returning to the UK and how company A is interested in buying my bond from company B (my present employer). I want to avoid any nasty surprise 12 months down the line. They got back to me classing the situation as "pecuniary liability: An example of this is where the employer pays a debt that the employee owes to a third party". Essentially they said if a company offers to buy you out of a bond then it is liable to tax on the sum of the bond! Therefore, when clearing the bond a company needs to pay over and above the amount due in order to cover any PAYE tax! Ouch... that's not going to go down too well at an interview!!!
I'm wondering if this is different if the payment is made directly between companies cutting out the employee?
If anyone is able to share past experiences regarding matters like this or provide details of a good independent chartered tax advisor, it would be appreciated.
For completion and for anyone interested in this in the future I have included the topics that the taxman stated as relevant to the situation.
Employment income: benefits in kind treated as earnings under Section 62 ITEPA 2003: benefits of direct monetary value to the employee: employer paying employee's debt: the pecuniary liability principle (http://www.hmrc.gov.uk/manuals/eimanual/EIM00580.htm) - this explains the basics of pecuniary liability
EIM00590 - Employment income: benefits in kind treated as earnings under Section 62 ITEPA 2003: the pecuniary liability principle: operation of PAYE (http://www.hmrc.gov.uk/manuals/eimanual/EIM00590.htm) - operation of PAYE
EIM07700 - Employment income: tax-free remuneration (http://www.hmrc.gov.uk/manuals/eimanual/EIM07700.htm) - where payment is grossed up in order to make it a ‘free of tax’ payment.
If you you're still reading this far down then well done for staying awake!
PT
I gave Mr Taxman relevant information about returning to the UK and how company A is interested in buying my bond from company B (my present employer). I want to avoid any nasty surprise 12 months down the line. They got back to me classing the situation as "pecuniary liability: An example of this is where the employer pays a debt that the employee owes to a third party". Essentially they said if a company offers to buy you out of a bond then it is liable to tax on the sum of the bond! Therefore, when clearing the bond a company needs to pay over and above the amount due in order to cover any PAYE tax! Ouch... that's not going to go down too well at an interview!!!
I'm wondering if this is different if the payment is made directly between companies cutting out the employee?
If anyone is able to share past experiences regarding matters like this or provide details of a good independent chartered tax advisor, it would be appreciated.
For completion and for anyone interested in this in the future I have included the topics that the taxman stated as relevant to the situation.
Employment income: benefits in kind treated as earnings under Section 62 ITEPA 2003: benefits of direct monetary value to the employee: employer paying employee's debt: the pecuniary liability principle (http://www.hmrc.gov.uk/manuals/eimanual/EIM00580.htm) - this explains the basics of pecuniary liability
EIM00590 - Employment income: benefits in kind treated as earnings under Section 62 ITEPA 2003: the pecuniary liability principle: operation of PAYE (http://www.hmrc.gov.uk/manuals/eimanual/EIM00590.htm) - operation of PAYE
EIM07700 - Employment income: tax-free remuneration (http://www.hmrc.gov.uk/manuals/eimanual/EIM07700.htm) - where payment is grossed up in order to make it a ‘free of tax’ payment.
If you you're still reading this far down then well done for staying awake!
PT