Under a compromise agreement, an employer can make two different types of payment:-
- A payment of earnings
- A termination payment
Payment of earnings will be taxable in the usual way, but special considerations apply to termination payments.
The main tax issues that relate to termination payments are that:
- The first £30,000 of payment termination payment is tax free, but over that limit tax is payable in the normal way
- If a payment (or part of it) is made under a contractual term, - e.g. if the contract gives the employer the right to pay in lieu of notice - that payment will be treated as earnings and be taxable in full
- A statutory redundancy payment will be tax free
- If the employer will pay your legal costs this will not be taxable, so long as certain rules are complied with
Please contact us to disucss how our Employment Law team can assist you.
