Reasons for payments

A company S transferred its drinks distribution business to K. After negotiations K agreed to pay transferring employees who were members of S’s defined benefit pension scheme a lump sum after the transfer.

HMRC said that the employees were liable to tax on these payments under ITEPA 2003 s 9(1); furthermore the employer K should pay National Insurance on them as the payments constituted remuneration or profit from an employment.
The employees and K appealed.

The First-tier Tribunal judge agreed with the appellants that the payments were made to compensate for loss of pension expectations and to ensure a smooth transfer.

However the payments were also made to secure the future good service of the employees and as such it was an emolument of employment. Thus the payments were taxable on...