Payment is tax exempt

The taxpayer was employed by a company from February 2003 to December 2004.

Under the terms of a compromise agreement he received in addition to his salary a lump sum payment of £37 424.

The agreement said that the payment was made in ‘in full and final settlement of any claims which he has brought or could bring against the company in relation to his employment or the termination of that employment’.

The taxpayer claimed the payment was in compensation for loss of office so that first £30 000 of the payment was exempt from tax under ITEPA 2003 s 401.

HMRC said the whole amount was taxable remuneration. The taxpayer appealed.

The First-tier Tribunal said that the lump sum payment made to the taxpayer did allow the first £30 000 to be tax free as...