Cash clinic: Contract small print should tell you whether benefits in kind should be taxed in payoff

Q I have applied for voluntary early retirement and have been offered 70 weeks pay in a lump sum, based on my salary for the last 12 months. My salary was £39,000 during this period, but I also had benefits in kind of £8,000 a year. Are these benefits accounted for in the lump sum calculation? Also, do I have to pay tax at the higher rate immediately for the sum in excess of the tax free payment of £30,000, or can this tax element be postponed over a period of time?

SC, St Andrews

A It would be necessary to have full details of your personal circumstances to provide a complete answer, but the following should help to start your research. The lump sum will be taxable in full where your contract of employment provides for such a payment on early retirement. However, assuming your voluntary early retirement is part of your employer's arrangements to reduce staffing levels and no replacement is being sought by the company for your position, then it may be possible to treat the first 30,000 of your lump sum as tax-free. Unfortunately, HMRC knows that employers often assume that the exemption applies when in fact the payment should be taxed in full, so it may challenge this approach.

Whether or not your benefits in kind of 8,000 a year should be included in the calculation of your lump sum depends on the terms of your contract of employment or the specific agreement which you make with your employer. As always, it is sensible to take expert advice based on your specific circumstances to avoid a nasty tax surprise.

• Brian Lovie is director of employment taxes at accountants and business advisers PKF

Q I have a sum of money deposited in an offshore account and I have recently read that HMRC is tracking down such accounts. What should I do with this money to ensure I do not fall foul of HMRC's regulations?

BM, Peebles

AThere is nothing wrong in holding an offshore account - there are entirely innocent arrangements under which offshore accounts are held. However, if you should have declared the money in the account and the interest earned on it but you have not done so in the past, now is the time to put matters right.

One option is to consider whether you qualify for the Liechtenstein Disclosure Facility, which is still open and runs until 2015. It is often possible to create a financial presence in Liechtenstein now to open up a low-cost route to disclose past tax irregularities. In many circumstances it is possible that the tax (and interest) bill to square matters with HMRC can be reduced substantially.

In other circumstances, a disclosure should still be made as it is likely to be only a matter of time before your account is detected. The benefit of coming forward voluntarily is that the penalty you will be charged will be significantly reduced because you have volunteered and co-operated fully with HMRC.

Taking expert advice on your options is a must, but don't delay.The longer you leave it before coming forward, the more likely it is that HMRC will discover your account - and putting things right will be a much more expensive exercise.

• Neil Whyte, tax partner at PKF

If you have a question you need answered, write to Jeff Salway, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: [email protected].

This above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice.

No action should be taken in reliance of the information given. The Scotsman Publications Ltd accept no liability on the basis of this article.