Law at work 2020 - the trade union guide to employment law (July 2020)

Chapter 10

Interest and tax

[ch 10: page 393]

If the sum awarded remains unpaid 42 days after the tribunal decision, interest is payable on amounts outstanding.

A compensation payment for unfair dismissal under a compromise agreement is tax free up to £30,000, even if the employee is reinstated, as long as it is genuine compensation for loss of the job rather than earnings or a payment for services (HM Inspector of Taxes v Clayton [2005] IRLR 108). Any amount over £30,000 is subject to income tax and (from April 2020) Employer NICs.

The rules on the taxation of notice payments changed from April 2018. See page 345.


This information is copyright to the Labour Research Department (LRD) and may not be reproduced without the permission of the LRD.