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A G Reid v HMRC

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In A G Reid v HMRC [2016] UKFTT 79 (9 February 2016), the FTT found that a payment made on the transfer of an employee was only partially taxable.

Mr Reid had received a payment from his former employer when he had been transferred to another employer under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations 2006. The issue was whether the payment constituted earnings for the purpose of ITEPA 2003 s 62(2).

On the basis of the various agreements, the FTT found that the payment had been compensation for the loss of the expectation of pension rights, bonus rights, share rights and lunch allowances. The FTT stressed, in particular, that there was no evidence that the payment had been an inducement to accept the new employer or the new terms of employment.

Referring to Kuehne & Nagel Drinks Logistics [2009] UKFTT 379, the FTT observed that the continuous employment which was deemed under the TUPE regulations did not mean that there had been no termination of employment for tax purposes. However, this was not relevant since Shilton v Wilmshurst [1991] 1 AC 684 was the authority for the proposition that payments can be earnings, even if made by parties other than the recipient’s employer. The central question was therefore whether the payment had been made ‘in return for or as a reward for acting as or being an employee’ (Hochstrasser v Mayes [1960] AC 376).

Following Kuehne & Nagel [2012] EWCA Civ 34, where a payment was made for more than one reason, the payment was taxable if any one of those reasons was employment. The FTT thought, however, that the position was different where a payment had different components, which had been paid for different reasons. Such a payment should be apportioned. The FTT therefore found that the compensation for loss of pension rights was not an emolument. As for the other elements of the payment, Mr Reid had failed to establish that they did not constitute earnings.

Read the decision.

Why it matters: The concept of a payment made up of different components could be helpful in relation to many arrangements between employers and employees, as it may be possible to shelter part of the payment from tax.

Also reported this week:

Issue: 1297
Categories: Cases , Employment taxes