Tax and NI on Ex-Gratia payments for work completed

An employer uses Ex-Gratia as a substitute for paying overtime for a shift that an employee agrees to work. The employer deducts Tax and NI at source. Of course there is the argument that these ex-gratia payments are derived from employment and should be taxable; however, working a shift for ex-gratia for this employer is completely non-contractual and doesn't fall under the remit of the contract of employment. For example, an employee can decide at any point when working a shift for ex-gratia that they wish to go home, or they can decide not to turn up at all - and they will not be subject to disciplinary action as its outside the scope of the contract of employment. The employer themselves can cancel the shift at the last minute also - and is not obligated to honour it as, again, it falls outside the scope of the contractual agreement between employee and employer. Based on the fact that the employee volunteers to work an extra shift for ex-gratia, and that it doesn't form part of their contractual agreement with the employer, is the ex-gratia payment itself- which is remuneration for work completed - still subject to TAX and NI?

Hi,

If the employee is doing work for the employer then this should be treated as earnings and declared to HMRC as such. It would not matter if it is contractual or if the employee can refuse to do it. HMRC's stance would be this would treated as normal earnings.

Thank you.

I was pretty sure that would be HMRC's 'stance' - but where exactly does it state this in legislation? Not trying to be difficult, but it appears this is more of an assumption on HMRC's part rather than being able to point to a statute. What is clear is that a sum of money paid to an individual by the means of ex-gratia is tax free up to £30,000. I just don't see any deviation from that or exemption. It would be helpful to read something, even some case law, that stated if the ex-gratia payment was linked to services rendered by an employee it falls under the normal rules of taxation - but i've found this impossible to find so far.

Hi,

HMRC doesnt recognise exgratia as a term as it is a catch all for alot of different types of payments. The 30,000 is in relation to termination payments.

The specific legislation regarding termination payments can be found at:

Income Tax (Earnings and Pensions) Act 2003

Thank you.