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For example Mr A receives an annual salary of 48,000. Hence monthly 4000. What if the employer has financial difficulties in that year and the salary gets late. If, in the tax year Mr A only receives 40,000 and receives the 2 months salary of 8000 quite late into the next tax year…. Would the 40,000 be taxable(on actual basis) or 48,000 (on accrual basis)?
What if Mr A retired next year and received a lump sum payment of an additional 500,000 (retirement money including gratuity/provident fund etc). Would all of this along with the salary of 48,000 be taxed? (and obviously most of it on the higher rate)
Thanks for your help sir!
Employment income is assessed on an actual received basis with the date of receipt being the earlier of:
when the actual payment was made, and
when the employee became entitled to such a paymentAt F6 this issue is tested in relation to a bonus payment when the period in which the bonus was earned – usually the accounting period of the employer – is irrelevant and the date of receipt is determined as stated above – see OT notes chapter 9.
One would assume on that basis that an employee would become entitled to their salary at the normal month end but you would need to look at the contract of employment to be certain of that fact.In relation to termination packages, these are not examined until P6 where a £30,000 exemption is available to payments made in respect of compensation for loss of office or ex gratia payments. Any payments that are contractual or which are normal practice for that employer are taxable in full.
Thank you for your reply.
As you said that normally one would assume that an employee would become entitled to their salary at the normal month end? Like… in general practice?
So basically its still kind of like the accrual basis?If you get an example in F6 dealing with payments of salary, but more usually a bonus, you will be told when it is received and you will use that in your answer. If, however they also tell you the date the taxpayer became entitled to the payment, then as above it is the earlier of the date received or the date of entitlement. You will never have to consider what the contract of employment may or may not say about the timing of the payments.
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