Former Barclays employee loses appeal over tax on Sh6 million payout

The Court of Appeal in Mombasa has dismissed a former banker’s claim for a Sh1.6 million top-up from his ex-employer. 

Barclays Bank of Kenya—now operating as Absa Bank Kenya—reached a comprehensive settlement with Kassim Mohamed, ending a protracted dispute.

The court found that Barclays lawfully deducted Pay As You Earn (PAYE) tax from a Sh6 million settlement agreed in a Consent Judgment.

The conflict arose from a 2019 agreement intended to settle Mohamed’s legal action against the bank. 

The contention lay in the alleged mismanagement of funds and the subsequent financial losses suffered by Mohamed. 

While the consent stipulated a payment of Sh6 million, the bank subsequently deducted the PAYE and remitted it to the Kenya Revenue Authority, paying Mohamed’s advocates the net balance. 

Mohamed argued this breached the binding agreement, but the appellate bench disagreed.

The three-judge bench found mandatory tax obligations remain in force even if a consent order is silent on the matter.

“The combined effect of these provisions is clear,” the judgment delivered on January 30, states. 

“Any amount paid to an employee or former employee as a gain resulting from the rendering of professional services—including lump sum settlement amounts—constitutes taxable income. It therefore attracts PAYE, and the employer has a statutory duty to deduct and remit such tax before releasing the net balance to the employee.”

The court dismissed the idea that the trial judge had improperly altered a binding contract. 

“The appellant's contention that the trial judge varied the consent is unsustainable,” they ruled. 

“The judge simply held that statutory tax obligations apply regardless of the parties' silence and cannot be circumvented through a Consent Judgment.”

The bench also confirmed the trial court maintained the authority to oversee the execution of the settlement. 

“Given that the matter appertained to execution of the Consent Judgment and not the merits of the Judgment, we find that the court was not functus officio [having performed the office],” the judges concluded.

Unless an agreement specifically states the amount is "net of tax," the duty to deduct PAYE applies.