Termination payments

[sgreen1979]

A director (not close company and he doesnt have shares) has had his contract terminated. He has been negotiating a compromise agreement where he is going to receive compensation of £200k.

Is it possible to have written into the compromise agreement that, say, £130k is receivable now and £70k receivable in the next tax year and, therefore, have the £70k taxed as part of next years income?

Thanks for your thoughts.

[MrPAYE]

It's not uncommon to do this and should be justifiable given the relative closeness to 5 April.

However, it is concerning that advice is being sought on a public forum around a £200k termination settlement. Paying a settlement of this magnitude without proper professional advice is just madness IMHO.

Just remember, you can say what you like in a compromise agreement but it matters not one jot from a tax point of view. It is the contractual terms that dictate the tax treatment of the various elements of the settlement.

[section 44]

should be justifiable

even though this relates to:

A director

?

[MrPAYE]

Yes

Maybe if the gap had been 6 months + the answer might have been different but staggering payments is commonly accepted by HMRC for both employees and directors as long as there is nothing sinister going on.

[MrPAYE]

And just to quote HMRC on this...in the context of payment date for PAYE purposes:

".....in a termination this will normally be the date of termination but the parties can agree other arrangements".

[Gnome]

I agree that with a termination payment of this size it is imperative that both parties get independent advice.

One thing I would say is that it is incredibly important to ensure with staggered payments that the right to receive the payment only accrues at the time of payment - especially where directors are involved as HMRC will seek to have the tax accounted for at the earliest possible point. So if the wording of the compromise agreement isn't spot on there could be issues.

[section 44]

important to ensure with staggered payments that the right to receive the payment only accrues at the time of payment

a conditional compromise agreement?

[section 44]

This doesn't make sense. What is the connection between company A and B. Is the money held as nominee?

[Gnome]

important to ensure with staggered payments that the right to receive the payment only accrues at the time of payment

a conditional compromise agreement?

I suppose the imposition of a (not particularly onerous) condition would work - I suspect that would be one for the legal chappies to consider.

I was thinking more along the lines of a "belt & braces" statement to the effect that no liability to pay will arise until the relevant dates. Notionally this would allow the company to ensure that the ex-director hasn't made off with all the paperclips for example. I'm probably being over-cautious thhough - it has been known!

[section 44]

statement to the effect that no liability to pay will arise until the relevant dates

But wouldn't that relate to the timing of actual payment/receipt rather than date of entitlement (hence taxable earlier)?