Is a compromise agreement always tax free?

Answer 1

Where have you been living ? .. almost nothing in UK is Tax Free :-)

Only the first £30,000 is Tax & N.I. Free (and only if the Agreement specifies that it is Redundancy) ... some other payments can be N.I. free ...

Payment for Discrimination etc. can potentially be Tax free .. better look it up ...

Answer 2

Crash course coming up.

To answer the question: no, not always.

That said, I've seen quite a few of these in the course of my duties (for HMRC), and more were tax free than taxable.

A compromise agreement will generally involve you giving up a right to a particular course of action (say to trade in a particular area, or to sue for unfair dismissal) in return for some consideration, usually money. This much you probably know already.

To be chargeable under PAYE, the amount has to be an emolument (aka earnings for Class 1 NI). This is the amount that you are paid for doing your job; your salary, bonus, overtime etc.

A payment under a CA is often outside the scope of emoluments/earnings as it is paid for a subtly different reason; not in return for work done, but for some sort of restriction on your future conduct/actions etc.

I have tried to simplify the highly complex world of termination payments. More detailed guidance can be found at the link below (scroll down to EIM13924).

BUT... it is important that you break down any termination payment into its constituant parts (i.e. payments in lieu of notice, redundancy, holiday pay, damages as discussed above, and so on) as the tax (or NIC) treatment may well differ for each.

Get the advice of an accountant if you are still unsure. Hope this helps.

Answer 3

A COMPROMISE AGREEMENT IS JUST THAT,YOU BOTH AGREE TO IT IN SETTLEMENT.

Answer 4

depends on state

Answer 5

i thnk so\