Employment News: Covid-19, tax

Hogan Lovells

Hogan Lovells

Replacement for furlough scheme announced

On 24 September the government announced the Job Support Scheme, which will open on 1 November. The Job Support Scheme will support wages for employees who are performing at least 33% of their normal hours but are not yet able to return to work full time because of reduced demand. Click here for further details of the scheme.

Changes to tribunal procedure

The backlog of employment tribunal cases continues to grow and further claims are expected to be lodged as the furlough scheme comes to an end. In light of the pressure on the tribunal system, the government has amended the tribunal rules of procedure to allow it to “draft in” judges from other tribunals and courts to sit as employment judges if necessary and appoint “legal officers” to take specified administrative decisions to reduce the burden on employment judges. The early conciliation period is also going to be extended to six weeks in all cases. Currently the conciliation period is four weeks with the possibility of a two week extension by agreement.

Alongside these procedural changes, the President of the Employment Tribunals in England and Wales has issued a Practice Direction on how to ensure open justice when conducting remote hearings and Presidential Guidance on some of the practicalities that parties need to consider when preparing for hearings.
  • It is still possible for press representatives or members of the public to attend remote hearings by contacting the relevant tribunal. Cause lists continue to be published to facilitate this.
  • Arrangements should be made to allow observers to inspect witness statements and potentially other documents referred to during a hearing.
  • Parties should plan to ensure that witnesses can participate effectively in hearings, including testing technology in advance and ensuring that witnesses have access to copies of witness statements and the hearing bundle in an appropriate format.
  • Represented parties must prepare searchable electronic hearing bundles with a hyperlinked index or table of contents, unless the tribunal orders otherwise.
  • Hard copies of bundles and witness statements must also be provided for the Tribunal’s use and sent to the Tribunal at least one week before the start of the hearing.
  • Tribunals will only accept documents that are “handed up” during an in-person hearing if there are safe arrangements for doing so, such as the provision of single use gloves.

Compromising – bonus payment was earnings, not a termination payment

The decision of the First-tier Tribunal (Tax) is a reminder that not every payment made on termination of employment will be treated as a termination payment for tax purposes.

The tax payer was employed from 1 November 2010 to 18 July 2012. Under his contract of employment he was entitled to a guaranteed bonus of £500,000 and it was agreed that this would have been taxable as earnings from employment if this had been paid in the normal way. However, he would forfeit the right to the bonus if he was subject to disciplinary action or had been summarily dismissed before the payment date.

The employer commenced disciplinary action against the employee before the payment date, but the parties subsequently negotiated a compromise agreement. The employment terminated by mutual agreement and the agreement provided for the employee to receive the bonus payment but nothing for loss of office. He argued that the “bonus” was taxable as a termination payment, not as earnings.

The First-tier Tribunal (Tax) disagreed. Although the employee would have forfeited his bonus if his employment had been terminated for cause, that was not what had happened, as the compromise agreement showed. The employee had effectively regained his entitlement to the accrued bonus – which was lost when the disciplinary action started – through the compromise agreement. This meant that the payment retained its character as earnings and was taxable as such, even though it was paid in the context of a termination of employment. The timing and context did not make it taxable as a termination payment.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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