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Introduction to this document

Golden hello payment letter

An inducement payment will sometimes be made to a new employee. Such a payment will normally be taxable. Exceptionally, it may be tax-free if you can demonstrate that the payment is not by reason of the employment. How can you establish this?

Lump sum payment

A “golden hello” is a popular term for a lump sum payment received on the taking up of employment. Normally, tax is due on these payments as if they were salary. However, if the payment is an inducement rather than a reward for future services, then it could be tax free if it satisfies the following conditions:

  • it must be clear from the facts that the payment is an inducement and not a reward for future services
  • if possible, the payment should be made before the employment commences (particularly for NI purposes this means before acceptance of employment is put in writing by letter or otherwise)
  • the payment must not be returnable if the person does not take up the employment
  • from case law, it is more likely that the payment will be accepted as tax free if the prospective employee has previously been self-employed and is giving up some right or asset to take up the employment.

Make sure the payment is accompanied by the Golden Hello Payment Letter which indicates that the payment is an inducement.