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bigduckontax, Accountant
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I am entering a settlement agreement with my employee

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Hi - I am entering a settlement agreement with my employee but there is a 5 month gap between initial signing and me leaving (legally there is two contracts). However my lawyer is concerned that the termination payment that would ordinarily be tax free to me, may incur tax due to the length of settlement. Please does anyone know if there is any reason for concern? (i.e. is it likely that the termination payment may not be treated as tax free due to the length of settlement? If so is there any guidance to how long/short this period should be in order for the termination payment to be treated as a tax free payment?
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
The first 30K of a redundancy payment is tax free, the balance chargeable at your marginal rate of tax in the tax year the moneys are received. Redundancy payments should be received on the last day of employment. However, whenever it is paid redundancy pay is still redundancy pay! Any undue delay may make grounds for reference to an Employment Tribunal. Here is an useful comment from
'If there is to be any long delay with the payment, then that needs to be discussed and agreed with the employee. If the employee feels that they have to wait too long, then they can take the employer to an Employment Tribunal.'
I do hope that my reply has set your mind at rest.
Customer: replied 2 years ago.
Hi I am not sure if you have understood my question. It is not about delay in payment but that I am agreeing a settlement package and signing that initially but continuing to work for 5 months. The payment will be after I finish at the end of May. Are you saying that there is no reason the termination payment should not be tax free regardless of when it is agreed? i.e. That by continuing to work for five months after settlement is agreed will not affect the tax ability of the termination payment?
Then as you leave you will receive your redundancy pay of which the first 30K is tax free. You should receive this on the last day of your service. The negotiations with your employer regarding the quantum of the redundancy payment and the timing of your cessation of employment are irrelevant.
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Customer: replied 2 years ago.
Great thanks
Thank you for your support.