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When compensation can prove taxing

Elliot Elsey explains the tax treatment of compensation and the need for practitioners to secure expert advice from tax specialists

23 October 2019

When conducting litigation, a key concern is obtaining certainty of outcome. However, the tax treatment of any compensation is all too often overlooked. Not all types of compensation are subject to a tax liability, but a number are.

As practitioners, we need to have those issues in mind when considering the potential outcomes and level of compensation sought in any dispute.

Timely, practical advice (and more than likely input from tax specialists) will ensure the best outcome for clients and avoid potential negligence.

What tax is payable?

Any type of compensation will ultimately relate to something of value, which will potentially be subject to tax.

Tax liabilities are subject to self-assessment and a client (and by extension, their professional advisers) needs to ensure their tax assessments are correct.

Consideration will need to be given as to the appropriate tax liability and an accountant and/or tax specialist will often nee...

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