Tax & Compromise agreements

Tax & Compromise agreements

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soon to be ex employee[ senior management] is to leave shortly

presumably his final payroll will include days salary for current month and unused annual leave etc - payrolled + taxed in the normal way

a compromise agreement will result in additional sums being payable in 30 days

please:
1] what is the tax consequences of the compromise agreement sums - payrolled ?, tax free to £30k or non taxable in full ?

2] if a p45 is raised after the payroll/salary payment, what is the implication if there is a tax[payroll] charge on the compromise sum

3] any other tax issues to be aware of regarding payments under the compromise

tia

Kiwi

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By thehaggis
04th Jun 2008 14:08

The Nature of the Payments

The compromise agreement will be made up of lots of different paymets, some which will be employment income - such as salary and PILON - and some which will not - such as redundancy and restrictive covenants.

It is the nature of the payments within the agreement that determine whether they are taxable under s62 or caught by s401. You need to look at each component and determine the correct treatment.

All taxable payments made before the issue fo the P45 should be included in the normal PAYE calculation and taxed usimg th eappropriate rates and alowances for that tax month. Taxable amounts made after the issue of the P45 should be taxed at BR.

You'll find most of what you need here http://www.hmrc.gov.uk/manuals/eimanual/eim12800.htm

(compromise agreements are at 12855)

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