Tottenham Hotspur did not need to pay employer’s National Insurance contributions in respect of the payments it made to Peter Crouch and Wilson Palacios when they transferred to Stoke City.
Anyone who has ever been party to a settlement agreement will most likely be aware that an employee gets the first £30,000 of any termination payment tax-free, with any excess subjected to income tax as normal. The current position is that, even for the portion of a termination payment which exceeds the threshold and is taxable, National Insurance Contributions (NICs) are not payable.
The ACAS guide on settlement agreements recommends that employers allow employees a minimum of 10 calendar days to consider a settlement agreement and to receive legal advice. That is a lot longer than many employers would want to give staff, so the question is can this guidance be ignored?
The High Court found that a settlement letter from an employer to an employee and the employee’s subsequent letter of acceptance amounted to a binding settlement agreement. This automatically prevented any further negotiations. If the employer had intended the settlement letter to be a springboard to further discussions, it should have headed the settlement offer ‘subject to contract’.
In Barden v Commodities Research Unit, Mr Barden was the former CEO of Commodities Research Unit. On his retirement, he was paid a sum under a settlement agreement. The agreement simply stated that Commodities Research were to ‘pay £1,350,000’ to Mr Barden. It fell silent on whether the sum would be paid net or gross. The High Court ruled that the sum should be paid net of tax (that is, after deduction of tax). To do so otherwise would be commercially absurd.