Settlement Agreement -NICs & Taxation

[anjo56]

Hello
I have been offered a Settlement Agreement of £56k, from my employer of which the first £30k is tax free, I'm told. I owe the firm £2.8k for my Season Ticket loan. What would be the tax treatment of the £26K please? Do I only get taxed on £23.2k as that is what I'll receive and are NICs payable? I am a higher rate tax payer. Apologies if this is a rookie question! Many thanks.

[darthblingbling]

You'll essentially be taxed on the residual above £30k on the settlement agreement (£26k), this is assuming it is all an ex gratia payment and you're working your notice period. The season ticket clawback will come from net income so you can't use to deduct from your taxable income.

[darthblingbling]

With regards to NIC, assuming once again that this is an ex gratia payment and you're working your notice in full, you should not be personally subjected to any NIC on this payment.

Your employer will likely suffer Class 1A NIC however on the £26k as this is a new rule that came into force for 2020/21.

[anjo56]

Thank you darthblingbling. It is an ex-gratia payment and I am working out my notice so your reply seems pretty clear. The Settlement Agreement mentions both tax and NICs being deductible so I can check the calculation when i get the payment. Thanks again.