Q&A: Payments made under a settlement agreement

The recent case of L (TC9355) in the First-tier Tribunal (FTT) examines the tax implications of the component parts of a settlement payment received by the appellant (L) from their former employer following the termination of their employment. The FTT had previously granted the taxpayer’s request to remain anonymous due to a serious risk to the taxpayer’s health and to keep the important details of the settlement confidential.

The appellant was employed by their employer as an executive director but was made redundant on 15 April 2013 and subsequently filed a claim to the employment tribunal for alleged discrimination harassment unfair dismissal and inequality of pay.

The employer and the appellant entered into a settlement agreement under which the appellant’s claims were settled. The employer made a payment to the appellant of £388 603 made up of various component parts including: 1) deferred...