28 June 2013 #Employment
The court rejected the claimant`s construction that £1,350,000 should be paid gross (that is, without deduction) as a "commercial absurdity". (The employer must "gross up" a gross payment by reference to the taxpayer`s marginal tax rate and account to HMRC for tax on the grossed-up amount. Here, the resulting total would have been £2,700,000, with HMRC and the claimant each receiving £1,350,000.)
Given the court`s construction, rectification was not necessary. However, the court confirmed that, had it construed the clause to require a gross payment, it would have ordered rectification on the grounds of common mistake.
Clearly, settlement agreements should always spell out very clearly that the sum to be paid is subject to tax and National Insurance. Especially, when £1.35 million is at stake!