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Interest and tax
[ch 10: page 390]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).
Proposed changes to tax rules for termination payments
The tax treatment of termination payments is expected to change from April 2018, depending on the election result. In summary:
• all payments in lieu of notice (PILONs) are expected to be subject to tax and national insurance (NICs) even when non-contractual. Any pay the employee would have earned had they worked out their notice period is to attract tax and NICs;
• the tax-free status of the first £30,000 of any compensation for loss of employment is to be retained; and
• employer NICs will be charged on all termination payments over £30,000.