Law at work 2021 - the trade union guide to employment law (July 2021)

Chapter 10

Interest and tax

[ch 10: page 409]

If the sum awarded remains unpaid 42 days after the ET 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 (since April 2020) Employer NICs.

The rules on the taxation of notice payments changed from April 2018. See page 356: Rights to notice and notice pay.


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