Compensation on TUPE transfer only partly taxable

In Reid v Commissioners for Her Majesty’s Revenue and Customs the First Tier Tribunal has held that only part of a payment made to an employee on a TUPE transfer as compensation for loss of pension, share and other contingent rights was taxable. It held that the payment was not made to induce the employee to enter into the transfer (which would have rendered it taxable as earnings) because the transfer was the trigger for the payment and not the reason for it. To the extent that it was compensation for loss of pension rights, these would not be taxable as earnings anyway. However the employee was unable to discharge the burden of proving that the other elements of the payment were not taxable. The Tribunal also held that, while TUPE deems employment to continue on the transfer of an undertaking for employment law purposes, the same effect with regard to tax does not take place.