SE12856 - Termination payments and benefits: compromise agreements: emoluments etc

Sections 19, 313 and 148 ICTA 1988

Compromise Agreements are nothing new. For example, Carter v Wadman (28 TC 41) is a case heard in 1946. It concerned an agreement signed at termination, separate to the employment contract, which settled all claims in respect of the employment and its termination.

The £2,000 settlement sum was claimed to be wholly compensation for loss of office (see SE13005).

But it was held that part of the payment was chargeable to tax under Section 19 ICTA 1988 because it satisfied a right to remuneration in the employee’s contract which had been met by the provision that the agreement was “in full and final settlement of all claims”.

So you need to consider whether any contractual entitlements have crystallised in order to see whether there are any charges under sections other than Section 148 ICTA 1988. See example SE13924

The same is true of any such agreement made at termination, whether it is called a “compromise agreement”, an “out of Court settlement” or other similar phrase.