Income tax on compensation payment ?

steady__eddie · 28 December 2005 at 12:13PM

My employer is changing our pay from weekly to monthly payments and has offered a token sum as compensation. Under the circumstances, it is a generous gesture (in thought only, not amount), however, there is an indication that the amount payable is likely to be diminished by the footnote on the letter......... "the compensation to be paid without deduction of income tax or national insurance, but this is subject to remaining within Inland Revenue rules".
Does anyone know if I am likely to share my "windfall" with the treasury or not please ?

sarahlouise210 · 28 December 2005 at 11:19PM

You should receive the payment tax and NI free ... there has been advice that these payments are made because you do not have access to your money for a period and as such should be treated as interest and tax deducted accordingly. This advice was challenged and I do not think the idea of taxing as interest was adopted...I will need to check to be sure though!;)

Income tax on compensation payment ?

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