Settlement agreements in employment—practical and tax issues
Settlement agreements in employment—practical and tax issues

The following Employment practice note provides comprehensive and up to date legal information covering:

  • Settlement agreements in employment—practical and tax issues
  • Parties to the agreement
  • Settlement agreements in the context of a TUPE transfer
  • Waiver of claims (full and final settlement)
  • Claims that can and cannot be waived
  • Data subject access requests (DSARs)
  • Can the employer refuse to act on a DSAR?
  • Remedies
  • Can the employee waiver the right to make a DSAR?
  • Payment for legal advice
  • More...

FORTHCOMING CHANGE relating to PENP: From 6 April 2021, an alternative PENP calculation will be available for employees paid by equal monthly instalments but whose post-employment notice period is not a whole number of months. Additionally, from the same date, PENP will be brought within the charge to UK tax for individuals who are not resident in the UK in the year their UK employment is terminated. The measures will be included in the Finance Bill 2020–21. For more detail, see Changes to the treatment of termination payments and post-employment notice pay for Income Tax: Policy Paper, Draft Legislation and Explanatory Note (21 July 2020) and News Analysis: Draft Finance Bill 2020–21—Tax analysis—Changes to the treatment of termination payments and PENP.

This Practice Note examines the practical issues that typically arise relating to an employment settlement agreement (formerly known as a compromise agreement). It also outlines the tax issues that are likely to be relevant, and refers to our related Practice Notes for further detail.

Parties to the agreement

In the case of an individual employer, or a company employer with a simple corporate structure, the employer and the employee will be the parties to the settlement agreement and there will be no need to refer to third parties.

However, it may be that the identity of the employer is not straightforward, eg

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