Interest and tax

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.