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Settlement agreement

An employee is month three of his six month notice. On employment he received a 30k loan “retainer/welcome bonus”. 

The employee is willing to waive their remaining notice pay on the basis they do not have to pay back the 30k Loan.

We were hoping to structure a deal whereby he waives the remaining notice, we pay ex gratia sum equivalent to that of loan balance and thus tax free, to be offset to loan balance owning. The commercial effect being cash neutral. 

There is currently a grey area in light of new rules effected April 18 in respect of settlement agreements and whether it is admissible to structure in this way. 

Any comments would be valued but not relied upon. Thanks 

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24th Apr 2018 21:10

The definition I found of 'ex gratia' is:

"(with reference to payment) done from a sense of moral obligation rather than because of any legal requirement".

You need to speak to your accountant.

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25th Apr 2018 08:09

Yes, the rules have changed. The unpaid notice will be deemed to be included in the ex-gratia payment and therefore treated as earnings subject to income tax and national insurance.

Any excess can be treated as a genuine redundancy payment.

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