However, formulating a settlement agreement by indicating an aggregate amount paid in one direction involves settling all claims in order to avoid this problem (since there is no set-off at all). It is increasingly common for the parties to a dispute to reach an agreement, either before the opening of legal proceedings or before they are concluded. Parties may settle their disputes outside of court proceedings for a number of reasons, including avoiding legal costs or time related to legal proceedings (whether litigation or arbitration). When obtaining a transaction (and, ultimately, accounting for the terms in a written settlement agreement), the parties should consider the possibility of applying paragraph (c) of the definition of “gross income” to transaction attributions if it can be found that the amount of the arbitration, contract or transaction is being made in respect of the services provided. not termination of services. This is especially true in scenarios where additional VAT compliance is required. For example, if the sum is a refund and triggers a credit and the excess income tax before the payer turns to HMRC for an income tax refund, everyone must agree. As with any payment that may attract VAT, it is important to do the processing correctly. If the payment is VATable, the plaintiff will require the defendant to pay VAT in addition to the principal payment of damages or indemnification. If the payment is made under a settlement agreement, the agreement should provide that VAT must be paid in addition to the principal amount, failing which the payment will be considered to be subject to VAT. Where the defendant is a business that has a full VAT recovery, it should be able to recover the VAT, but only if the VAT has actually been due. By way of illustration, the failure to take VAT into account in relation to an out-of-court settlement has the following consequences: the Labour Court in AL SHA Trading Pty Ltd v Neil Harrison, the CCMA and the High Court Sheriff, Germiston, J235/15, confirmed that, if the settlement agreement or arbitral award does not say whether the arbitral award is not PAYE, the amount will be gross of PAYE and will be subject to the legal deductions of PAYE in the hands of the staff party. As such, SARS confirmed that CCMA and Labour Court judgments (which contain transaction premiums) are either taxed according to the general definition of “gross income” in section 1 of the Act, or that they may be specifically included in paragraph (d), paragraph (f) or, where applicable, in paragraph (c) of that definition.

In practice and to the detriment of the settlement seller, it appears that the parties to an out-of-court settlement are often unaware of the treatment of VAT on matching payments and therefore do not take into account the VAT component when agreeing on or relating to a transaction amount. . . .