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Termination payments

Termination payments

A director (not close company and he doesnt have shares) has had his contract terminated.  He has been negotiating a compromise agreement where he is going to receive compensation of £200k. 

Is it possible to have written into the compromise agreement that, say, £130k is receivable now and £70k receivable in the next tax year and, therefore, have the £70k taxed as part of next years income?

Thanks for your thoughts.
 

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20th Jan 2012 11:52

Probably

If the amounts are taxable under S.401 (essentially non-contractual payments connected with termination), then they are broadly taxable when payable (see S.403(3) ITEPA 2003 for the receipts basis rules in this context).

Otherwise, the amounts are likely to be taxable as "general earnings" and the receipts basis rules are set out in S.18, which may bring about an earlier receipt for a director (as defined in the section).

The other issues are then whether it can be done as a matter of law (and I do vaguely recall having seen an amount payable under a compronise agreement being payable in instalments) and whether the employer company will agree (although I can't see why the shouldn't).

There is, of course, a risk that if anything untoward happens to the employer company before the deferred payment is received, then it may end up being lost in its entirety.

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