Taxation of Termination Payments

compromise agreement1 300x90 Taxation of Termination Payments

 

The Government has published a document on the “simplification of the tax and National Insurance treatment of termination payments”. That induces some draft legislation that will change the way that termination payments and settlement agreements are taxed and negotiated.

Currently employers may be able to pay notice payments tax free if there is no contractual right to pay in lieu of notice. Also employers can pay up to £30,000 tax free in some cases and higher payments are also exempt from employers National Insurance. 

The new legislation, due to come into force in April 2018 will change this. What is proposed is that:

  1. All pay in lieu of notice payments will be fully taxed and subjected to National Insurance.
  2. Employers will have to pay employer National Insurance on all termination payments of over £30,000.
  3. Payments for Injury to Feelings in discrimination claims will also be taxed.

Employers will still be able to pay up to £30,000 tax free and without National Insurance.

Employers should take this opportunity to look at their current employment contracts and ensure that they have the best contractual protection. It is likely that if these new laws are brought into force that there will be no reason why all employers should not have contractual pay in lieu of notice clauses in their contracts.  It is also essential that employers take fresh legal advice on any settlement agreements that they are using. Once the law changes in 2018 those will need important changes to ensure that they work properly. It is never a good idea to simply keep using an old settlement agreement as employment law does change so quickly. 

In summary the law may be a little clearer on tax once the new legislation is in force. What is also clear is that this will cost may employers and some employees additional tax when terminating employment or settling employment tribunal claims.

Paul Whitfield is the Principal Solicitor at Fox Whitfield.

Fox Whitfield can advise HR, employers and employees on Settlement Agreements , disciplinary processes, procedures and unfair dismissal claims. We can also arrange meetings in the evenings or at weekends to work around your working hours.

www.foxwhitfield.com

0161 283 1276

Employment Law Solicitors – Head Office based in Manchester with offices located throughout the United Kingdom.

 

 

Client Feedback

paul whitfield manchester office Client Feedback

Sometimes it’s easy to become jaded with the law and the demands of work. Then once in a while a client reminds you that what you do really matters to them, the hard work made a difference and that they really appreciated what you did.

I recently settled a case for a client. He was an employee with a strong case. He had legal expenses cover but the advice he was getting from the insurance company lawyer wasn’t great. They told him it wasn’t worth doing anything and that they wouldn’t cover his costs.

I thought it was worth him doing something and he was willing to pay some fees himself. We issued his claim and it then quickly settled for more than twice the sum the insurance company thought it was worth. The client was very happy and offered to write me a testimonial.

What he wrote was this: –

I was was referred to Paul Whitfield of Fox Whitfield by a friend. I wasn’t getting much support from the legal cover on my home insurance. Paul stepped in and won an out of court settlement on an unfair dismissal dispute. He handled the whole case and guided me through the process. Paul knows what he is doing, he is very professional and provides an outstanding service.”

The icing on the cake for my client was that I have now managed to get his insurance company to cover all of the costs they had initially refused. Money from employers is hard to get, but getting money from insurance companies is a whole new level of difficult!

My client is delighted and I am reminded why, sometimes, this is a great way to make a living.

Paul Whitfield is the Principal Solicitor at Fox Whitfield.

Fox Whitfield can advise HR, employers and employees on disciplinary processes, procedures and unfair dismissal claims. We can also arrange meetings in the evenings or at weekends to work around your working hours.

www.foxwhitfield.com

0161 283 1276

Employment Law Solicitors – Head Office based in Manchester with offices located throughout the United Kingdom.

Compromise Agreement: What is a Compromise Agreement?

compromise agreement1 Compromise Agreement: What is a Compromise Agreement?

What is a Compromise Agreement?

Please be aware that Compromise Agreements are now called Settlement Agreements. Please see http://www.foxwhitfield.com/settlement-agreements/

A compromise agreement is a legally binding agreement between an employer and employee that settles a dispute between them. Employers are increasingly using compromise agreements at an early stage of a dispute to prevent possible complaints in the tribunal.

A compromise agreement is the only way an employee can validly “contract out” of their employment law rights. It usually provides for a severance payment and an agreed reference, in return for which the employee agrees not to pursue any claim or grievance they may have in an employment tribunal. Without a valid compromise agreement an employee might be able to take the money and then still bring a claim. Employers should always ensure they get advice to ensure the agreements are up to date and binding.

It is thought that the increasing use of these agreements may be part of the reason why the most recent statistics from the Employment Tribunal show a 15% reduction in Employment Tribunal Claims.  In a survey conducted last year by the Chartered Institute of Personnel and Development more and more employers (7 out of 10 surveyed) were using compromise agreements rather than risk the costs and uncertainly of employment tribunal claims. Our experience is that there are more not fewer disputes between employers and employees than ever at the moment.

Employees must take independent legal advice from a lawyer on the agreement for it be valid and the employer will normally pay towards the cost of this advice. Fox Whitfield regularly advise on and negotiate agreements for both employers and employees.

 

Paul Whitfield can be contacted on 0161 283 1276 or paulw@foxwhitfield.com

Fox Whitfield is regulated by the Solicitors Regulation Authority  – Roll Number 524972

Fox Whitfield Solicitors Head Office is based in Manchester with branches throughout the UK to help both employers and employees with compromise agreements.