SE13740 - Termination payments and benefits: payments to meet legal costs

Extra Statutory Concession A81

Termination of an employment may involve legal dispute between employee and employer. This may be settled by negotiation between the parties or by Court proceedings. In either event, the employer may agree to pay legal costs incurred by the employee.

Such a payment is within Section 148 ICTA 1988 since it is made in connection with the termination (see SE13010) but is not charged:

• where the dispute is settled without recourse to the Courts if three conditions are met:

• the payment is made direct to the employee's solicitor rather than to the employee himself and
• the payment is applied to discharge the bill for solicitor's costs which the employee has incurred only in connection with the termination of his employment and
• the payment is made under a specific term in the agreement that settles the dispute

• where the payment of costs by the employer is made in accordance with a Court Order. This applies even if the payment is made direct to the employee

Note that the concession:

• applies only to legal costs, not to any other professional costs (such as accountancy fees). However, it does include the expenses of expert professional witnesses incurred by the employee's legal advisor
• does not allow an employee to claim a deduction for his or her own legal costs in any way