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Termination payments and compromise agreements

The taxation of payments made to officers/employees under termination agreements has recently been the subject of two interesting cases heard before the First-tier Tribunal (FTT) – Reid v HMRC [2012] UKFTT 182 (TC) and Johnson v HMRC [2013] UKFTT 242 (TC). This article considers potential pitfalls when making such payments before exploring ways in which such pitfalls can be avoided.

Taxation of ‘termination’ payments

Broadly the first step in determining the taxation of purported termination payments is to consider whether the payment is truly a ‘termination payment’ or is in fact a payment of a different nature. Disputes often arise over whether the payment in question is a true termination payment or a payment for services (whether pursuant to...

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