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Settlement Agreement payment subject to tax
In Hill v HMRC, the First Tier Tax Tribunal has held that a payment of £30,000 to an employee under a Settlement Agreement was a taxable emolument from his employment because it was made to compensate him for a change to his contract which required him to work in excess of 10 miles from his original work place. The employee argued that the payment fell under section 401 of IT(EP)A because it was made in consideration for him agreeing not to bring a claim against his employer for failure to consult under TUPE, which resulted in the change to his workplace. However the Tribunal did not agree and found that the payment was within general earnings because the change of actual, as opposed to contractual, workplace had taken place 3 years before the transfer. The Tribunal’s decision was reinforced by the fact that the employee was required to repay part of the payment if his employment ceased within 2 years of it being paid. Interestingly the Tribunal’s decision did not turn on whether the TUPE transfer resulted in a deemed continuous employment. Had it done so, it would have considered that the TUPE transfer gave rise to continuous employment but conversely, if there had not been a TUPE transfer and the payment had been made for a breach which took place before the termination of employment, it is quite possible that the payment would have fallen within section 401 and thus would not have been taxable.
This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.
For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.
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