This article covers the subject of Taxation of Termination Payments. Following termination of employment, the first £30,000 is paid tax-free – but only if it relates to compensation for loss of employment, awards from Tribunals or paid under a Settlement Agreement and statutory or enhanced redundancy pay. The payment is also not subject to national insurance. However, from April 2018 national insurance will also be paid on any sum over and above the first £30,000. Payments in lieu of notice will be subject to tax.
Settlement Agreements can be drafted to allow for any additional sums over and above £30,000 to be paid into an employee’s pension which would allow the payment to be made without incurring any tax liability for example.
If you as an individual have received a Settlement Agreement and require advice on the same, or as a company require guidance on drafting a Settlement Agreement, please contact Robin Humphreys or Liz MacDonald on 01905 731731.