Deductions from redundancy payment

The taxpayer left her employer on 31 October 2010 after entering into a compromise agreement under which she was to receive a redundancy payment of £36 700 payable in four monthly instalments.

The employer was liable to deduct basic rate tax at 20% from the taxable element of the payment and the taxpayer had to report additional tax in her self assessment.

The employer made a deduction of 39.7% from the final instalment although failed to provide a breakdown of the payment to the taxpayer. It later accounted for tax at the basic rate to HMRC.

The taxpayer did not declare the redundancy payment in excess of £30 000 on her tax return. HMRC raised a discovery assessment for the higher rate tax due.

The First-tier Tribunal dismissed the taxpayer’s appeal. She took the matter to the Upper Tribunal saying the lower court had erred in law by failing to...