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Ex Gratia Termination

  • 26-01-2017 6:24am
    #1
    Heisenburg81
    Closed Accounts Posts: 322 ✭✭


    Are termination payments to close comp directors an allowable corp tax deduction?
    In esssnce they are a discretionary expense so do not have to be paid.


Comments

  • #2
    Mr. Incognito
    Registered Users, Registered Users 2 Posts: 9,798 ✭✭✭Mr. Incognito


    Are they connected persons to the Company?


  • #3
    Heisenburg81
    Closed Accounts Posts: 322 ✭✭Heisenburg81


    Mr. Incognito wrote: »
    Are they connected persons to the Company?

    Yes 99% director


  • #4
    Mr. Incognito
    Registered Users, Registered Users 2 Posts: 9,798 ✭✭✭Mr. Incognito


    Then no.

    There are very strict rules around emoluments to shareholders in close companies.

    They are treated as distributions not salary.


  • #5
    Lockedout2
    Registered Users, Registered Users 2 Posts: 402 ✭✭Lockedout2


    Interesting.

    If the termination payment was part of a package where they were selling their shares and became unconnected would it be allowed.

    I've seen husband director resigns and gets termination payment and wifie and son director continue! Crazy!


  • #6
    Heisenburg81
    Closed Accounts Posts: 322 ✭✭Heisenburg81


    Lockedout2 wrote: »
    Interesting.

    If the termination payment was part of a package where they were selling their shares and became unconnected would it be allowed.

    I've seen husband director resigns and gets termination payment and wifie and son director continue! Crazy!

    Which is common practice and perfectly allowable.
    There is no problem with a termination payment for directors. Typical process pump up pension, termination payment and retirement relief.
    Whether it is an addback for CT is what Im questioning.


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  • #7
    dogsears
    Registered Users, Registered Users 2 Posts: 535 ✭✭✭dogsears


    Mr. Incognito wrote: »
    Then no.

    There are very strict rules around emoluments to shareholders in close companies.

    They are treated as distributions not salary.

    I disagree. OP said these are directors. Termination payments to them are just as much allowable as any other taxable remuneration to those directors so long as paid for the purposes of the business - the costs of "hiring and firing". The fact that the termination payment might be discretionary doesn't change this nor does any exemption that might attach to the termination payment in the hands of the director.

    (I agree there are rules such as you refer to in relation to shareholders who are not directors).

    There are some limitations and one of them relates to the question asked by Lockedout 2. If the termination payment is made as part of a package involving the sale of shares there is UK case law to the effect that this is not allowable as in effect the purpose of it is too connected with the share sale to be a legit business expense. I've not seen it quoted in disputes here but its well known in the UK.


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