Tax

Tax relief for bonus claw backs

Clawback provisions have become a buzz word for bonus and share plans. The ability of employees to reclaim the income tax and National Insurance contributions they have paid on amounts which are subsequently clawed back has been difficult, which has meant most employers only provide for the net amount to be recoverable. However this could change following a ruling by a tax tribunal in favour of an employee that he could claim relief for income tax paid on a bonus which was subsequently clawed back.
Martin v HMRC
 

Termination payment in compromise agreement was actually a PILON and taxable

An employee who received £123,000 via compromise agreement after his employer breached his contract by failing to give him his full payment in lieu of notice (PILON) had to pay tax on the full amount, even though the payment was less than the PILON he should have received. 
Goldman v HMRC
 

Settlement payments: employer correctly deducted tax

There is no implied obligation on an employer to apportion a termination payment between taxable and non-taxable elements. An employer can legitimately treat the whole sum as taxable and leave it to the employee to sort out the position with HMRC if he or she believes it should be different.
Norman v Yellow Pages Sales Ltd
 

Tax-free payments for discrimination

Payments made by an employer under a compromise agreement or in full and final settlement of discrimination claims can be paid tax free. This is the case even where a large part of, or the entire compensation payment, is paid in respect of the discrimination element. But the payment must be in respect of the discrimination occurring before the termination and not in respect of anything following the termination, e.g. for loss of future earnings.
Oti-Obihara v HMRC
 

Taxation of termination payments

When making staff redundant, the question often arises as to whether any payments in lieu of notice (PILONs) can take advantage of the £30,000 exemption from income tax and NICs.

SCA Packing Ltd v Revenue & Customs