Income Tax (Earnings and Pensions) Act 2003 section 413A

Exception for payment of certain legal costs

Section 413A exempts from the termination payments tax charge certain payments by an employer towards an employee's legal costs that arise exclusively in connection with the termination of their employment, provided specific conditions are met.

• Employer payments towards an employee's legal costs on termination of employment can be exempt from the termination payments tax charge if two conditions are satisfied
• The legal costs must relate exclusively to the termination of the employee's employment and can cover all or part of the fees and disbursements of a qualified lawyer
• If the payment is made under a court or tribunal order, the exemption applies regardless of whether the payment goes directly to the employee or to their lawyer
• If there is no court order but the termination is settled by agreement, the exemption only applies where the settlement agreement specifically provides for the payment and it is made directly to the employee's lawyer rather than to the employee