Termination payment is tax free

The taxpayer was employed by BMS in 1996. In 2003 her job was changed to the extent that she claimed it no longer matched the job she had taken on.

She considered herself to have been constructively dismissed and told her employer she expected to receive three months’ salary in lieu of notice as she was entitled.

The employer did not accept that she had been constructively dismissed but agreed to pay her three months’ salary less tax as a lump sum as a gesture of goodwill.

When completing the relevant tax return the taxpayer claimed that the sum was not taxable. HMRC disagreed. The taxpayer appealed.

The First-tier Tribunal after considering the evidence decided that the taxpayer had been constructively dismissed by the employer.

The judges’ understanding was that a constructive dismissal took place where the employer acts in a way...