The settlement agreement may contain post termination restrictions prohibiting the employee from competing or dealing with the employer's clients and suppliers.
To give effect to these restrictive covenants the employer has to make a payment against the employee's undertaking, and in the settlement agreement this is expressed as being taxable.
Other elements of the termination package are taxed differently:
Salary and benefits
Payment in lieu of notice
Redundancy pay
Compensation payment
Tax indemnity
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When are they used? What's in them?
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Identifying legal claims through tailored advice
Consult our settlement agreement guide
Is a settlement agreement offered when staff are redundant?
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Tax on severance pay, redundancy, accrued holiday and more
Who is liable for tax?
Visit the Aeon Solicitors main site, where you will find our law library, with information on a diverse range of employment law and commercial law issues, spanning contracts, post-termination restrictions, disciplinary and grievance, unfair dismissal and wrongful dismissal.