Severance pay - personal tax question

[brissleboy]

Somebody I know is due to retire shortly after many years of working for the same company and has been offered an attractive severance package of £500k and a new Range Rover (or cash equivalent). The person in question will also work as a consultant for the same company for a 6 month period following retirement but will not be paid for this (all included in the payment previously advised).

My question is this: what is the best way of dealing with this tax wise to ensure the person in question benefits as much as HMRC will? I guess it could be payrolled but could a limited company be set up and then dividends eventually taken?

Whilst I'm an accountant, I left my knowledge of complex personal tax issues back when I did my exams!

Any help would be greatly appreciated.

[anonymous-user]

Assuming the person is an employee (and isn't a shareholder), then I can't see how the company can do anything other than pay it via PAYE, without putting themselves in a very risky position with HMRC.

Somebody is nicely set up for retirement...

[sumo69]

Is the severance contractual (and therefore taxable) or is a "compromise agreement" for breach of employment contract a possibility?

With these sort of sums, and the possibility of a very big PI claim if the advise is wrong, I would be seeking some expert advice.

David

Edited by sumo69 on Tuesday 18th March 20:26

[anonymous-user]

sumo69 said:

Is the severance contractual (and therefore taxable) or is a "compromise agreement" for breach of employment contract a possibility?

With these sort of sums, and the possibility of a very big PI claim if the advise is wrong, I would be seeking some expert advice.

David

I believe that even a compromise agreement payment would be taxable over £35k.

Agree with you on the advice bit though, this is one for your accountant.

[brissleboy]

The person in question is an employee with no shareholding in the Company and a legal document is currently being drawn up so the Company can't worm itself out of it should it want to.

I absolutely agree expert advise should be sought in this matter, was just wondering whether anyone had any experience with something like this.

Thanks for the replies.