Employer refuses to pay partial performance but provides ex-gratia payment - tax implications?

As part of a recognised pay dispute my employer refuses to accept partial contractual performance but instead "the [employer's] current position is that it will withhold 50% of pay. The 50% of pay being paid is paid on a voluntary basis by the [employer], without prejudice to its legal right to withhold pay in full and to its rejection of partial performance. This payment is being made by the [employer] as a matter of discretion and is not a payment in return for work carried out." Since this payment is an ex-gratia payment not made in return for any work carried out, and is less than £30,000, is it taxable? Thank you.

Hi Ziggurat,

[Original reply amended - HMRC Admin]

Your question suggests you are going to receive payment for performing some but not all of your duties of employment. Without full details it is not possible to say definitely but as the payment would appear to be from your employment and for the performance of duties it will be taxable in full as earnings. 

Apologies for any confusion caused by the original response, which has now been amended.

Thank you.

Hello. The HMRC representative has misunderstood what is going on. The £30k exemption is for ex gratia payments *on termination*. These are just weird, supposedly ex-gratia, payments during an industrial dispute. There is no termination, and the £30k exemption is irrelevant. So please ignore it.

Hello moderator. Bit odd that you're not deleting a clearly incorrect posting by "HMRC Admin 10". Could really get taxpayers into trouble.

Hi Ziggurat,

Your question suggests you are going to receive payment for performing some but not all of your duties of employment. Without full details it is not possible to say definitely but as the payment would appear to be from your employment and for the performance of duties it will be taxable in full as earnings. 

Apologies for any confusion caused by the original response, which has now been amended.

Thank you.

I and other employees at my own institution are experiencing exactly what Ziggurat describes above. HMRC Admin 32's assumptions are wrong, at least in our case: my employer has explained clearly, repeatedly, and in writing to all employees that they do not accept partial performance of duties, that any work we carry out during this period is entirely voluntary, and that the 50% of our salary that we shall receive is not dependent in any way on whether or not we perform any duties. All this is thoroughly documented. I'd be grateful for clarification as to how the matter really stands.

Hi HMRC. Thank you for your initial response and then your updated response. My interpretation of the message from HMRC Admin 32 is that HMRC would not accept the employer's claim that they are rejecting partial performance and that the payment is a "discretionary", "voluntary", and/or "ex gratia" payment. Rather, HMRC would consider that this is in fact (to quote HMRC Admin 32) a "payment for performing some but not all of your duties of employment". Is this interpretation correct? Many thanks, Caleb

Hi. Exactly what this weird payment is doesn't actually matter. Any payment from your employer is going to be "earnings" and fully taxable, whether it's ex gratia or not. Think about it this way: otherwise many employers would knock £30k off wages and pay £30k "ex gratia", saving large amounts of tax. That doesn't and can't happen.

Hi Syrithe and elcalebo,

Without knowing the full facts and having sight of the supporting documents it is difficult for HMRC to provide a conclusive position. The terms used to describe a payment do not decide its treatment and we would consider each case on its own merit, taking into consideration the specific circumstances, before we made a decision.

Generally speaking, if a payment derives from the employment, it would be taxable as earnings. It is not necessary for the earnings to be remuneration or a reward for services for them to be taxable. Payments made voluntarily even if there is no legal obligation to make them will still be taxed as earnings if they derive from the employment. Additionally, payments made by reason of the employment are also taxable as earnings.

The £30,000 limit does not apply unless certain conditions are met and there is a termination of the employment.

For a definitive view on your own particular circumstances you may consider seeking professional advice on how their payment should be treated. If, after seeking that advice, there is still some genuine uncertainty the individual may be able to make a non-statutory clearance application.

Thank you.