K Murphy v HMRC

In K Murphy v HMRC [2021] UKUT 152 (TCC) (29 June 2021) is an Upper Tribunal (UT) decision on an age-old question in tax law: is everything received by an employee from his employer taxable income? The UT held that in a case concerning the taxation of a settlement agreement relating to unpaid overtime only the amount net of the success fee and insurance premium should be taxed as employment income because only this amount was ‘profit’.

The appellant was an officer with the Metropolitan Police Service (‘the Met’). He and other officers commenced group litigation proceedings in the High Court against the Met for unpaid overtime and other allowances. Under a settlement agreement the Met agreed to pay the claimants the sum of £4.2m (the principal settlement sum (PSS)) plus agreed costs. Solicitors and counsel for the claimants had agreed to act in return for a...