Generally, there is a misconception that where an employee's employment is terminated and the employer agrees to pay a termination/severance payment that the first £30,000 is tax/NIC free
In addition, a further misconception is that by agreeing to pay a termination/severance payment under a compromise agreement also supports the case that the first £30,000 can be paid free of tax/NIC.
This is not the case and many employers have come unstuck taking this approach.
There is, within legislation, a number of hurdles that must be got over before a payment can fall to be taxed under, what is commonly referred to as, the termination payments legislation. It is this part which provides an exemption for the first £30,000.
As a consequence, great care needs to be taken to determine what can be paid free of tax and NIC (if anything at all). If payments are made free of tax and NIC, when tax and NIC should have been deducted, HMRC will seek recovery of the unpaid amounts from the employer and not the former employee.
EmphaCIS can review the circumstances under which a termination/severance payment is being proposed and advise on the correct tax/NIC treatment. Again, it is better to take a proactive approach rather than a reactive one.