Do You Pay Tax on Settlement Agreement?
If you’ve been offered a Settlement Agreement, you may be wondering if you’ll have to pay tax on it. The answer is yes, since April 2018, any payment in lieu of notice related to a Settlement Agreement must be subject to tax and national insurance deductions.
The government has created a statutory formula that should be applied to ensure that any outstanding notice pay due is paid subject to tax and national insurance. This means that any payment in lieu of notice will be subject to the same tax and national insurance deductions as any other earnings.
The amount of tax and national insurance due will depend on the amount of the payment and the individual’s personal circumstances. The employer is responsible for calculating the amount of tax and national insurance due and deducting it from the payment.
It is important to note that the payment in lieu of notice is not the only element of a Settlement Agreement that may be subject to tax. Any other payments made as part of the Settlement Agreement, such as compensation for loss of office, may also be subject to tax.
It is also important to note that the tax and national insurance deductions may be different depending on the type of payment. For example, a payment in lieu of notice may be subject to a different rate of tax and national insurance than a payment for compensation for loss of office.
It is important to seek professional advice to ensure that you are aware of the tax implications of any Settlement Agreement. Your employer should be able to provide you with advice on the tax implications of the Settlement Agreement and should also be able to provide you with a breakdown of the tax and national insurance deductions that will be due.
In summary, since April 2018, any payment in lieu of notice related to a Settlement Agreement must be subject to tax and national insurance deductions. The amount of tax and national insurance due will depend on the amount of the payment and the individual’s personal circumstances. It is important to seek professional advice to ensure that you are aware of the tax implications of any Settlement Agreement.
