Will I lose my bonus if I’m made redundant?

I have been put at risk of redundancy just before my bonus has been paid. Will I lose my bonus if I am made redundant and what will happen to my deferred compensation?

Natasha Forman, senior associate in the employment team at Kingsley Napley, says that it is important to check your contract and related documentation first. It is quite typical for an employment contract to provide that you will lose your bonus entitlement if you are put on notice of termination of employment before your bonus is announced or paid.

Redundancy processes often only last a few weeks in the UK, so it’s very possible that you will find yourself being put on notice of termination of employment before the bonus has been confirmed. In these circumstances, it may be possible to negotiate a pro-rata bonus payment in respect of the period you have worked. It may also be possible to negotiate a loss of bonus payment as part of the taxable element of any severance package with enhanced redundancy terms you may be offered.

Consider whether you have any levers to negotiate a higher severance package, to include either a pro-rata bonus, or a loss of bonus payment and any loss of deferred compensation. For example, have you been put at risk of redundancy for a discriminatory reason, such as because of your age, sex, sexual orientation, gender reassignment, pregnancy/maternity, disability, race, religion or belief or marriage or civil partnership?

Or have you previously raised concerns about potential wrongdoing and could this be a factor in you being put at risk? If so, then you have potentially valuable claims which should not be compromised without significant financial recompense.

Additionally, if the proposed redundancy is a cloak for another reason for dismissal, then this should be factored into your negotiations. A fair dismissal for poor performance involves a longer process compared with a redundancy exit, during which you would continue to accrue salary, annual leave, bonus, equity and other benefits. Such losses should be factored into a settlement negotiation.

In relation to deferred compensation, the relevant plan documentation often states that an employee will be considered a “good leaver” if their employment terminates by reason of redundancy with more favourable treatment on exit, provided they comply with any restrictions relating to the entitlement.

Much will depend on the detail of the deferred compensation plan and the devil will be in the detail. Try to ensure your deferred award entitlement and good leaver status is set out clearly in any settlement agreement that may be entered into.

Why has HMRC written to me about my crypto holdings?

I am a professional in my thirties working in London. While I don’t invest much, I have bought a few different cryptocurrencies over the past couple of years and received significant returns until the collapse of FTX. I rarely thought about my crypto holdings, especially as I never withdrew any funds, until I received a “nudge letter” from HM Revenue & Customs. What does it mean, and how should I respond to it?

Danielle Ford, head of tax disputes and resolutions, at Haysmacintyre, a chartered accountant, says the situation you are facing is common — many people have experimented with crypto but are not aware of the possible tax consequences.

HMRC’s view is that cryptocurrencies are a chargeable asset liable to capital gains tax (CGT), and any gains above the CGT annual exempt amount (CGT AEA), and/or proceeds four times the CGT AEA, should be disclosed on your self assessment tax return. You may be unknowingly subject to tax, even if funds have not been withdrawn from your FTX trading platform.

This has caught out taxpayers because each transaction is taxable. For example, purchasing ethereum using bitcoin will be treated as a disposal of bitcoin for tax purposes, incurring a tax bill on gains while not physically receiving the proceeds, as you have described.

Unfortunately, FTX collapsed following suspected fraudulent activity. It has been reported that funds belonging to users are considered irrecoverable. This means that you will not have access to your funds, leaving you in a difficult position for the settlement of your tax bill. HMRC has published guidance relating specifically to this issue, advising that taxpayers may be able to make a negligible value claim.

We have encountered people who made substantial gains, generating a large tax bill, followed by losses in the following tax year, leaving them without the funds to pay the tax bill. While losses could be claimed in the later period, the gains in the earlier period still need to be reported and the tax charge presents a cash flow issue.

HMRC has become increasingly interested in cryptocurrencies, due to their increase in value during 2021, and has increased compliance activity in this area, leading to the “nudge” letter you received.

HMRC is sending nudge letters to those identified holding crypto investments, reminding them of their obligation to report their transactions and tax due, which are based on information the tax authority has gathered. Your letter is likely to contain a deadline by which you are required to respond. You should neither ignore the letter nor sign the enclosed certificate.

The best course of action is to seek professional advice for your situation and to assist with the response to HMRC’s letter. Getting things wrong at this stage could lead to additional late payment interest and higher penalties.

It is also worth seeking professional advice for any cryptocurrency gains and/or losses, whether these have been withdrawn or lost. As you have received a letter, your disclosure to HMRC will be treated as a “prompted” disclosure. Those who approach HMRC before being contacted, making what is known as an “unprompted” disclosure, will benefit from the lowest possible penalties.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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