a href http www.compromiseagreement.org.uk Compromise Agreements a and tax
Below is a MRR and PLR article in category Reference Education -> subcategory Legal.
Compromise Agreements and Tax: What You Need to Know
Summary:
Many employees end up paying excessive tax on their Compromise Agreements due to a lack of knowledge among some solicitors about tax treatment. Consequently, clients often pay more than necessary.
Keywords:
Compromise agreements, solicitors, legal advice, employment law
Article Body:
If you've been offered a Compromise Agreement to end your employment, ensure your solicitor understands how different payments will be taxed. Often, the agreement can be rephrased to save you money. In this article, employment law solicitor Andrew Crisp explains the essentials.
Compensation for the loss of employment, including any redundancy payment, is not taxable up to £30,000. However, any payments due under an employment contract?"such as salary up to the termination date, accrued but untaken holiday pay, bonuses, and commissions?"are taxable.
What if your Compromise Agreement includes a payment instead of a notice period, known as a Payment in Lieu of Notice (PILON)? If you work your notice period, the salary is taxed normally. The taxation of PILON is less straightforward. Is it taxable under the employment contract, or is it a tax-free compensation for employment loss?
The key is whether there’s a PILON clause in your employment contract. If no such clause exists, any PILON in the Compromise Agreement isn't considered a contractual payment. Instead, it's seen as compensation for breach of contract and can be tax-free up to £30,000.
However, if the contract does have a PILON clause, any PILON payment is taxable as it’s considered a contractual payment. Even if the employer has the discretion to make a PILON but pays compensation instead, it might still be taxed if the compensation matches what a PILON would have been.
Compromise Agreements often mistakenly specify that tax will be deducted from the PILON. When choosing a solicitor, ensure they fully understand how termination payments are taxed. A simple rewording could potentially save you thousands of pounds!
You can find the original non-AI version of this article here: a href http www.compromiseagreement.org.uk Compromise Agreements a and tax.
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