Sarah King Employment Solicitor Northampton

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You are here: Home / Archives for News / News - Compromise/settlement agreements

Taxation of termination payments

24/08/2016 by Sarah King Leave a Comment

taxation of termination paymentsHMRC has published its draft legislation concerning the proposed changes to the taxation of termination payments.  The changes are expected to come into force in April 2018 as consultation on the proposed legislation continues until 5th October 2016.

The proposed changes are to make all PILON payments taxable and subject to class 1 NIC’s deductions irrespective of how they came about or the terms of the contract. They also include retaining the £30k tax free termination payment exemption but subjecting all sums over this to NIC’s which does not currently happen.  There is no mention of any increase in the £30k tax free amount which has been at that level for sometime now.

The legislation also aims to end the difference in judicial opinion on the tax treatment of injury to feelings awards. The proposal is that these will also be taxable also. If you wish to see the full details or comment on the consultation you can do so here.

These changes will have a big impact on settlement agreement packages for employees although the tax treatment of payments can cause a lot of confusion for employers not knowing what to do so this will simplify that element at the detriment of the parties though.

Tag(s): settlement agreement solicitor kettering, settlement agreement solicitor northampton

Tax treatment of termination payments

18/03/2016 by Sarah King Leave a Comment

termination paymentsFollowing my Tweet on the day of the Budget from April 2018, termination payments that are subject to income tax on amounts in excess of £30,000 will be subject to employer national insurance contributions.

The £30,000 exemption will remain and that the whole termination payment will be outside the scope of employee NICs.

In addition, legislation will be introduced to ensure that all payments in lieu of notice and certain damages payments are taxed as earnings. The foreign service exemption will also be abolished. The Government intends that these changes will be introduced in the Finance Bill 2017 and consultation over the technical details will commence in the summer of 2016.

Tag(s): settlement agreement, settlement agreement solicitor oundle, settlement agreement solicitor thrapston, settlement agreement solicitor Wellingborough, tax treatment of termination payments, termination payments

Consultation on Termination Payments

07/08/2015 by Sarah King Leave a Comment

settlement agreementsThe Government is considering how they can make the tax and National Insurance treatment of taxation of termination payments simpler and fairer and is seeking views from interested parties as to how this can be achieved.

At present, there is a £30,000.00 termination payment which can be made free of tax and National Insurance providing the same is a non-contractual payment. These are commonly made in settlement agreements where the employee needs to take legal advice on the settlement agreement. The proposal under consultation is to remove the distinction between contractual and non-contractual termination payments so it is easier for everyone to understand. It is also proposing to introduce a change to the fixed £30,000.00 tax free limit which instead increases over time when the employee has been in service in the company. Under the proposal, they will also introduce a two year qualifying period, so no employee can receive the tax free payment unless they have worked with the same employer for two years. The proposal is also to make an injury to feelings award, subject to tax for some or all of the award.

The guidance contained within the consultation document suggests that the tax free sum could be as low as £10,000.00 for an employee with four years’ service. In my view, this change would not encourage settlement of claims at an early stage. Instead the incentive for the employee to accept a payment in settlement of its claims would be diminished, and the likelihood of the employer wanting to make a larger payment whereby it suffers the National Insurance consequences may also be diminished.

Interested parties can have their say by following the consultation here.

Tag(s): advice on settlement agreement, settlement agreement advice northamptonshire, settlement agreements, termination payment consultation

Why do employers offer settlement agreements?

21/02/2014 by Sarah King Leave a Comment

settlement agreements

Firstly, what is a settlement agreement? Well it is a legally binding agreement usually between an employee and their employer whereby the employer offers the employee a lump sum in excess of their normal entitlement to compromise any employment claims they may have. It must meet certain legal requirements to be a valid settlement agreement one of which is that is must be in writing. Settlement agreements were historically called compromise agreements.

Employers use these sort of agreements simply as it gives them peace of mind.  Whilst they can have a financial cost this is often outweighed in the knowledge that any claims the employee has are settled.  They are an alternative to the possibility of facing an Employment Tribunal which can be expensive and time consuming for the employer.

A well drafted agreement can compromise all the claims an employee may have and depending on the merits of any claim the sum an employer would need to pay to “buy out” the employee may not be that high.  In some cases, employers use settlement agreements for any potential dismissals and many choose to use them before any dismissal takes place.  It depends on the employer.

The employee must take legal advice on the settlement agreement and seeking specialist employment law advice can reap benefits.

Tag(s): employers settlement agreements, employment law solicitor, settlement agreement advice, settlement agreement solicitor kettering, settlement agreement solicitor Northamptonshire, settlement agreement solicitor oundle, settlement agreement solicitor thrapston, what is a settlement agreement

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Sarah King t/a SK Employment Law is not a firm of solicitors. Sarah King is a consultant solicitor at Excello Law Limited and legal services are provided by Excello Law Limited which is authorised and regulated by the Solicitors Regulation Authority under SRA number 512898.

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