Last month (May ’11) we looked at the concerns raised by practitioners about the new Extra Statutory Concessions Order 2011 (SI 2011/1037) which enacts ESC A81 exempting legal fees from tax where these are paid as part of a termination agreement and are paid directly to the employee’s solicitor. As drafted, the exemption seemed narrower in scope than previously. HMRC had indicated that it would review, and if necessary amend, the Order. However, HMRC have now stated that no changes will be made.

As drafted, the Order seems now to limit the concession to compromise agreements. Previously, COT3 agreements were also covered but since COT3 agreements, by their very nature, do not usually contain all the provisions necessary to satisfy the requirements of a compromise agreement, they may fall outside the scope of the extra statutory concession unless they are now drafted in the form of a compromise agreement.