Poor advice from solicitors re termination payment
Discussion
In Feb/March 2010 my wife was negotiating through her solicitors, a specialist employment law practice in Manchester, a termination settlement from her then current employers. There's no need to go into the details bar one point.
The first £30000 of the termination payment was paid to her nett of basic rate tax, but when added to her other reciepts pushed her into the 40% tax bracket. Prior to agreeing to the payment, one point we queried with the solicitors was that being the case, would it not be better to defer the excess until the following tax year (EG 3 weeks later)as the payments were provisionally due to be paid mid March. We were told that tax would only be payable at 20%.
It now transpires that the advice was incorrect and wifey has just had a tax demand for £2500 for the difference between the 20% and 40% tax bracket.
Have we any recourse with the solicitors, or will they wash their hands of it all. We are a bit miffed as you can imagine - it would have been so simple to negate this liability.
The first £30000 of the termination payment was paid to her nett of basic rate tax, but when added to her other reciepts pushed her into the 40% tax bracket. Prior to agreeing to the payment, one point we queried with the solicitors was that being the case, would it not be better to defer the excess until the following tax year (EG 3 weeks later)as the payments were provisionally due to be paid mid March. We were told that tax would only be payable at 20%.
It now transpires that the advice was incorrect and wifey has just had a tax demand for £2500 for the difference between the 20% and 40% tax bracket.
Have we any recourse with the solicitors, or will they wash their hands of it all. We are a bit miffed as you can imagine - it would have been so simple to negate this liability.
If your requests, queries and concerns were in writing and they responded in writing (especially if they unambiguously said there'd be not problems) then you've got a chance of something. But I suspect it would be a long haul. First stop would be to make a formal complaint to the firm. Thereafter the relevant trade/consumer organisation.
If it was all done verbally, then I suspect you'll have a problem proving what your position was and the fact that the firm has screwed up.
If it was all done verbally, then I suspect you'll have a problem proving what your position was and the fact that the firm has screwed up.
I haven't even spoken to them yet, but they always made lots of notes in one of our visits. But we definately had a conversation where I asked if it would be a good idea to split the payments into two parts. It would have been easy to do, and for the sake of a 3 week delay on 10k, not an issue to either party.
There were clauses relating to tax liabilities in the agreement that was eventually signed and must have been scrutinised by our solicitors.
Also, even if it wasn't discussed at all, as employment law solicitors, perhaps they should have known and given relevant advice, even if it was to advise us to check it out at an accountants.
They did bill my wife for £5,000 so you would expect some competency I would have thought.
There were clauses relating to tax liabilities in the agreement that was eventually signed and must have been scrutinised by our solicitors.
Also, even if it wasn't discussed at all, as employment law solicitors, perhaps they should have known and given relevant advice, even if it was to advise us to check it out at an accountants.
They did bill my wife for £5,000 so you would expect some competency I would have thought.
Edited by andygo on Tuesday 14th February 13:36
1. Invoke the firm's complaints procedure. Put your concerns into writing and ask them for a formal response from the firm's complaint's handling partner.
2. Once you have a final decision, if it's not satisfactory to you consider making a complaint to the Legal Ombudsman Service. They investigate consumer complaints about lawyers and can award compensation up to £30K.
3. In theory, there might be a professional negligence claim but, TBH, for the amount in issue, it would cost you a disproportinately large amount to pursue.
4. If you're set on 3. above, check your home contents policy to see whether it includes legal expenses insurance.
But 2. is your best bet if you don't get an offer of compensation from the firm.
2. Once you have a final decision, if it's not satisfactory to you consider making a complaint to the Legal Ombudsman Service. They investigate consumer complaints about lawyers and can award compensation up to £30K.
3. In theory, there might be a professional negligence claim but, TBH, for the amount in issue, it would cost you a disproportinately large amount to pursue.
4. If you're set on 3. above, check your home contents policy to see whether it includes legal expenses insurance.
But 2. is your best bet if you don't get an offer of compensation from the firm.
Formal complaints against legal firms fall within the jurisdiction of the Legal Ombudsman. Information is here:
www.legalombudsman.org.uk
You will find lots of information as to how to go about making a complaint, including specimen letters, and then how the LO can help out resoving a dispute.
R.
www.legalombudsman.org.uk
You will find lots of information as to how to go about making a complaint, including specimen letters, and then how the LO can help out resoving a dispute.
R.
Sounds to me as though the company making the payment dropped a boll*ck and paid it via PAYE when it didn't need to be.
The first £30,000 of payments which are compensation for loss of a job can be paid tax free. There are a few things you need to consider, but any decent employment specialist would know what needs to be done.
I'm assuming that you haven't put the figure on any tax returns, as its not a taxable income?
The first £30,000 of payments which are compensation for loss of a job can be paid tax free. There are a few things you need to consider, but any decent employment specialist would know what needs to be done.
I'm assuming that you haven't put the figure on any tax returns, as its not a taxable income?
sideways sid said:
I'm not an expert but I guess that the employer would have insisted on a single final settlement during the tax year that the employee's employment was terminated rather than risk being embroiled in making payments over more than one tax year to assist the amployee in tax avoidance?
I have just imported some old email files from a non resident hard drive. I have an email from the solicitor suggesting a termination date of 9th April.The date seems to have changed in the final paperwork to mid march, so I'm guessing wifey's employers did as you thought above. I guess she is stuffed and the HMRC get a nice little gift of £2500 from our holiday fund.
Poo!
If we had been a bit more switched on at the time (We had shedloads going on at the time) we might have been a bit more diligent and stuck to our guns.
A lesson for everyone there I guess.
andygo said:
I guess she is stuffed and the HMRC get a nice little gift of £2500 from our holiday fund.
Poo!
If my point above regarding the employer paying it via PAYE incorrectly is right, then the HMRC have had a nice little gift of anywhere between £6000 and £12000 from your holiday fund (20% or 40% tax) - as none of it should have been taxed in the first place!Poo!
She's not here at the mo, but I think she sent them a copy... Doh!
The company she used to work for, a huge National company were notorious/held in awe of their squeeky cleanliness though, so they had probably hopped skipped and jumped all the way to the tax office with the details already.
The company she used to work for, a huge National company were notorious/held in awe of their squeeky cleanliness though, so they had probably hopped skipped and jumped all the way to the tax office with the details already.
bqf said:
Did your wife declare the full Compromise Agreement amount on her tax return? As I understand it the revenue aren't routinely given details of compromise agreement settlements...
If the payment was under £30k and was part of a compromise agreement then HMRC shouldn't have been notified at all.Regardless of whether the company was squeeky clean, it shouldn't have been a problem, and it shouldn't have been taxed.
I've got hold of the figures now. She had a tax free sum of £30000 plus £12000. She was taxed at 20% on the £12000 at a straight 20% and it appears to have attracted no NI or pension cont.
Because that £12000 fell in her 40% bracket they are saying she owes an additional 20% tax, which as I said originally, would have been negated if it had been paid after April 6th. rather than just before.
Because that £12000 fell in her 40% bracket they are saying she owes an additional 20% tax, which as I said originally, would have been negated if it had been paid after April 6th. rather than just before.
Could it have been the employers not paying it correctly into the account?
I had similar after my redundancy a few years ago were the company themselves screwed up the PAYE and NI, it meant I had a nice 4 figure bill to pay when they caught me.
The actual compromise agreement (did she get one of these) was absolutely spot on, just payments were not paid properly.
If this is the case its the employer and not the solicitor that is wrong, however the actual agreement or signing of the agreement has small print that says that you the signer of the agreement is now responsible for all tax implications of the agreement and anything else that appears later.
Hence I was stuffed and had to pay.
I had similar after my redundancy a few years ago were the company themselves screwed up the PAYE and NI, it meant I had a nice 4 figure bill to pay when they caught me.
The actual compromise agreement (did she get one of these) was absolutely spot on, just payments were not paid properly.
If this is the case its the employer and not the solicitor that is wrong, however the actual agreement or signing of the agreement has small print that says that you the signer of the agreement is now responsible for all tax implications of the agreement and anything else that appears later.
Hence I was stuffed and had to pay.
Gassing Station | Finance | Top of Page | What's New | My Stuff