Tax is due

The appellant was made redundant by her company. She was told that she would receive four months’ salary in lieu of notice (£14 000) five weeks’ redundancy pay (£1 400) an ex gratia payment in lieu of four months’ benefits (£8 389) and a bonus (£3 542).

Although the company initially said that the payment in lieu of notice would be tax-free the human resource manager subsequently wrote to the taxpayer stating that this was incorrect and she was legally obliged to pay tax on this amount.

When the taxpayer completed her tax return for the relevant year she entered an amount under lump sum and compensation payments as a tax-free payment from which tax of £8 115 had been deducted.

HMRC enquired into her return and concluded it had been completed incorrectly. The tax of £8 115 had been correctly deducted by the employer...