My return for 2002-3 is being investigated, specifically in respect of the compensation payment made when I was made redundant. After a series of communications with the darkly-named "Compliance" unit of HMRC, the final bone of contention is over whether the payment related to the 1st month after my termination is taxable or not. Of course, they say 'yes', but I would like to check whether this is truly the case, based on the following facts:
1. I was told that I was being made redundant on 23/1/3. No official period of notice was mentioned. My P45 gave the same date as the date my employment finished i.e 23/1 nd NOT a month later.
2. My contract identified a 4 week notice period, and also allowed the company to "reserve the right to make a payment equivalent to salary instead of requiring you to work out any notice period" (a PILON in the Revenue's eyes, and they are quoting the SE12976 EMI case at me).
3. Although not obliged to, the company actually offered me a compensation payment equal to 3 months salary + 1 month's car allowance, all adding up to less than the Â£30k threshold. It is the 1st month of this payment (+ the car allowance) that the Revenue would like to tax
I guess my question is whether there are any grounds for me to argue that this amount should not be due, and this revolves around the date when my employment was terminated. In the absence of any official notice letter, the P45 is the only document that states a date for employment ending (23/1/3). Wouldn't the P45 normally take into account any period of notice or implied PILON i.e making the date a month later ?
Apart from the principles at stake, I have continued to "discuss" this with the Revenue because I am now trying to get my own little business into profit, and therefore I'm trying to avoid as many bills as possible! So if there are any tax specialists, employment lawyers, accountants, or anyone else out there who feels they can offer some advice, I look forward to hearing from you.
Thanks in advance.