Does anyone know if they mean this payment is tax free?

[Thatismtthig]

I’m in discussions with my employer about not working my notice and being given a settlement on top of 6 months salary. I am told the payments will be normal through my notice period and then at the end the final lump sum of 6 months pay will land. Will this be 6 months pay after tax? I know I need legal advice and will be getting it for the settlement but I don’t want to prod too much at the figures with HR at the moment as I am finding it all very upsetting

Why do you think it would be tax free?

AFAIK (and I am no expert) this would go through your normal payroll and deductions would apply.

In redundancy there would be a tax free element.

Maybe ask Acas?

@CaramelVanilla it was just something I thought happened with payments outside of a notice period

You need to prod I'm afraid. Ask if the 6 month lump sum is based on gross or net pay, and if they envisage it will be tax free (depending on how much t is and the reason for it).

https://www.gov.uk/termination-payments-and-tax-when-you-leave-a-job/what-you-pay-tax-and-national-insurance-on

Is it redundancy? If so you get £30k tax free if it’s normal earnings it’s taxed as normal

No not redundancy just a general dispute and im walking away

My DS got a settlement after his employer bodged up a redundancy consultation (or rather didn't hold one) . The settlement was taxed whereas redundancy payments aren't, so do bear this in mind

Settlements can have a £30,000 tax free element even if they aren’t linked to redundancy as long as the contract is drawn up correctly. Anything above that and anything that is in lieu of notice is taxed as normal.

If you haven’t used all the tax free allowance you can ask them to word the contract to make the notice pay count as settlement instead of as pay as well.

You have to take legal advice on your settlement agreement and your lawyer will explain everything.

This isn’t correct. Notice pay will always be fully taxed.

If it’s compensation rather than earnings it may not be taxable but you’d need to get a solicitor to look at exactly what the contract says

if it’s classed as notice pay yes; but you can ask your employer to re-classify it as part of a settlement agreement then it can fall under the tax free allowance

£30k can be paid tax free and no employee NI payable on the settlement amount ( ie. not your 6 months notice payment).

Just been through this personally. Anything under your contract (such as notice pay or holiday pay) is taxable as normal.

If you are getting a compensation payment for loss of office, and signing a settlement agreement, then this is not part of the contract of employment and would be tax free - at least it is in my case, (union etc)

No you can’t

This would literally be tax evasion.

It was a lawyer who encouraged me to consider this in my case, it didn’t become relevant, but he was clear that when the pay is in lieu of notice it can fairly be classified either way. Just as long as it’s stated as such in the agreement. If it was notice that was being worked then clearly it’s pay and should be taxed as much.

I don’t want to divert away from the OP with a tax evasion argument though. If there’s a settlement agreement involved then the company is required to provide independent legal advice to her which will give personal specific advice

On termination of employment, if you are contractually due a notice period, that money is taxable, whether you work the notice period or not, the same will apply to other contractual payments, such as payment for unused holiday entitlement.

If the employer makes an additional payment that is not set out in your contract of employment (eg redundancy / a payoff because they want to see the back of you etc) that part is tax free.

OK well I am an employment solicitor and unless this was many years ago he was incorrect and negligent and you could find there is a tax liability remaining. It will be "post employment notice pay" (PENP) and it is taxable.

Many years ago you used to be able to classify the PILON as compensation if your contract was worded in a particular way but this has changed.

OP your notice pay or PILON will be taxable.

The rest of it is likely to be potentially tax free up to a maximum of £30k.

Less than a year ago! As I said it became irrelevant in my case, as the separate settlement amount used up the allowance. I’m confident there’s no extra tax liability.

Perhaps there was something unusual about my contract or specific case, but that was definitely what I was told.

Oooof. I hope he doesn’t regularly advise on Settlement Agreements.

Since 2018 or so it’s been a requirement to tax either notice pay, or the equivalent sum (a simplified explanation of the ITEPA 2003, it’s a bit more complex than that).

There is no opting in or out of this, and no exceptions to the rule, even if you’re dismissed for gross misconduct and you aren’t even owed notice pay. You were incorrectly advised! (Which is odd, considering taxation on termination payments is pretty much trainee solicitor lesson number one…)

i got a proportion tax free of my settlement but I read above that perhaps I was lucky date wise and this was early 2018