Since 1988 it has been possible to receive a redundancy payment of up to £30,000 tax-free. Some leaving payments are not tax-free at all and very occasionally it is possible to secure more than £30,000 tax-free.
Bernadette was one of our pro-bono cases, referred by a charity because she could not afford professional tax support. Her life had taken a downward turn following a stress-related breakdown. Bernadette worked for a very large IT company in the City and was successful for many years. However, stress at work took its toll and she was unable to work any longer. After an acrimonious dispute lasting several years Bernadette agreed in a compromise agreement to a payment of £90,000 to end her employment and potential claims against her employer.
By the time she received the settlement Bernadette needed to pay large medical expenses and had no prospect of returning to paid employment in the short-term. She was referred to us and we examined the whole situation from a tax perspective.
Payments can be made tax-free on death or disability under what was then an often overlooked tax concession. We argued that Bernadette’s illness had disabled her and the payment should therefore be entirely tax-free. There was legal precedent for stress being a disability in this context and we submitted various medical reports to HMRC.
However, the difficulty of the case was linking the £90,000 payment to the stress. An old tax case Hasted v Horner necessitated that we make that link clearly.
Bernadette had of course “compromised” her ability to pursue a stress claim any further by accepting the £90,000 payment. The documentation prepared by the IT company of course made it entirely clear that no such actions could be brought or alleged.
We successfully and accurately argued that Bernadette signed the compromise agreement on the advice of her medical team, as the ending of the dispute was critical to her recovery. We convinced HMRC that reliance on the compromise agreement alone to determine the true nature of the payments was an unfair position for them to take. Such documents will often draw a veil over the underlying situation.
After a long struggle we won the case and Bernadette was able to avoid a tax liability of some £24,000, which she has since used to start a second (less stressful) career.