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Compromise Agreement: Tax-efficient severance package for voluntary redundancy

25 January 2010

We advised our client in relation to a compromise agreement following her voluntary redundancy. Our client had volunteered for redundancy as her employer was offering an enhanced severance package, however she wanted to ensure she received the money as tax efficiently as possible and that she would be in a good position to find alternative employment. Although up to £30,000 of compensation can be tax free, our client was receiving substantially in excess of this amount. We therefore structured the agreement not only to ensure the tax free status of the first £30,000 but so that any payment in excess of this amount would only be taxed at basic, as opposed to higher rate.
We also negotiated the inclusion of an agreed reference and for the employer to confirm it would not make any derogatory statements about our client and would keep the terms of the agreement confidential. These are often important clauses for employees, who want to ensure their reputation is protected and to know what their employer will say to any prospective employer.
Our client was therefore able to maximise the cash value of the compensation she was being offered and could be sure of receiving a good reference from her employer.