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bigduckontax, Accountant
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I just received my settlement agreement, and would

Customer Question

Hello I just received my settlement agreement, and would like some tax advice to understand whether I still need to pay tax. My job has been made redundant, and I disagreed resulting in a settlement agreement with help of ACAS. The settlement agreement is for 30,000 GBP. My employer has stated however in the settlement the following:

"settlement sum will be paid without deduction of income tax or National Insurance contributions pursuant to Chapter 3 of Part 6 of the Income Tax (Earnings and Pensions) Act 2003. The Claimant will be responsible for the payment of any additional tax and employee's National Insurance contributions (including any interest, penalties, costs and expenses) arising in respect of the settlement sum (the "Additional Tax"). The Claimant agrees to indemnify the Respondent (and all Group Companies) and to keep them indemnified on a continuing basis against all and any liability for the Additional Tax that the Respondent may incur."

Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
The first 30K of redundancy payment is tax free so you are in the clear. Your employer seems to be quite properly clearing his yard arm regarding taxation.
However, the following areas of final payments are subject to tax and NI viz:
Unpaid wages
Payments in lieu of notice
Holiday pay
Any payments made in respect of entering into a restricted covenant
Matters concerning occupational pensions
The Low Incomes Tax Reform Group has some excellent guidance which you can find here:
http://www.litrg.org.uk/tax-guides/employed/what-tax-do-i-pay-on-redundancy-payments
I do hope my reply has been of assistance to you.
Customer: replied 1 year ago.

Dear *****,

Many thanks for your reply. The problem that I am facing in this matter is that my employer does not want to state the termination of my employment is due to redundant. In fact: in the settlement agreement there is no mentioning of redundant, only of 'termination of employment' and the settlement being for 'unfair dismissal'.

I am aware of a 30,000 cap for taxes on redundancies, however if the statement does not clearly state this, does it still impact the payments based on the referral to Income Tax (Earnings and Pensions) Act 2003, chapter 3.

Many thanks,

Kate

Expert:  bigduckontax replied 1 year ago.
In my opinion you are covered by HMRC advice in EIM13005 viz:
'This represents compensation for loss of the employment. It will often be calculated as damages'
This is a payment on termination of employment Kate so the 30K tax free would appear to apply, but not, of course, to those matters I mentioned in my original post.
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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3366
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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