Post termination restrictions

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