Compromise Agreements Solicitors & Lawyers » Basic Rate of Tax

Compromise Agreement Solicitors – Taxation of Termination Pay

admin — Sat, 07 Nov 2009 07:37:28 +0000

We are still being asked about taxation of Settlement Payment or some people refer to it as Termination Payment.

The correct advice is that the first £30,000 of an employee’s Termination Payment will be paid without deduction of income tax in accordance with section 403 of the Income Tax (Earnings and Pensions) Act 2003. If an employee’s Settlement or Termination Payment is over £30,000, then your employer will make deductions of income tax at the basic rate of 20% in respect of the balance of the Termination Payment over £30,000.

RT Coopers Solicitors can advise you in this regard. Contact enquiries@rtcooperssolicitors.com for a meeting or more specialist advice. We will give you an indication of our costs.

Tax Indeminty

admin — Fri, 17 Jul 2009 11:49:00 +0000

Each compromise agreement has a tax indemnity. It usually causes a lot of discussions when we are advising Employees. It is a safe guard for the Employer in case the Employer has to make a payment to the Inland Revenue in respect of pyaments made to an Employee under a compromise agreement. A typical tax indemnity provision is as follows:-

Except in respect of income tax or employee’s National Insurance contributions deducted by the Employer, the Employee undertake to be, responsible for any income tax, employee’s National Insurance contributions, fines, interest, costs and/or penalties arising in respect of all and any of the payments made and benefits provided under this Agreement (”Tax Liability”) including, for the avoidance of doubt any Tax Liability on the first £30,000 of the Compensation Payment and Employee indemnify and will keep indemnified the Employer and any companies associated withthe Employer against any claim or demand which is made against the Employer or any companies associated withthe Employer in respect of any such Tax Liability. The Employee undertake immediately to pay to the Employer on demand any such Tax Liability.

What does payment of salary in Lieu of Notice mean?

admin — Sat, 14 Mar 2009 11:04:52 +0000

A number of employees that we come across do not seem to know the meaning of payment in lieu of notice. What does it mean? It means that your employer is paying you upfront so you do not have to work out your notice period. So, for instance, if you have a 3 months’ notice period in your employment contract, your employer would pay you three months salary in lieu of notice. If you have a two month notice period in your contract of employment, your employer will pay you two months salary in lieu of notice.

In some cases, employees have received a year’s salary in lieu of notice. As always, this salary will be subject to the appropriate deductions of tax and National Insurance contributions (based upon the salary rates current at the time of notice).

Taxation of Redundancy Payment

admin — Thu, 26 Feb 2009 20:35:28 +0000

This week we have had so many employment clients seeking advice on their Compromise Agreements and asking us the same question over and over again i.e. whether it is basic rate tax or the higher rate tax that is payable on compensation by an employer for making an employee redundant. The answer is any amount over £30,000.00 will be subject to basic rate tax. That is any compensation payment over that amount. I hope this clears up this query.

Basic Rate of Tax

admin — Mon, 16 Feb 2009 22:50:03 +0000

You will only pay basic rate of tax on your compensation (redundancy pay) over £30,000.00. Please rememebr that your payment in lieu of notice would be taxed in the normal way i.e at your normal tax rate.