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The taxpayer company established two discretionary employee benefit trusts for its employees.
Following the sale of the parent company for £39 million the trustees made cash payments to certain employees based on the company’s bonus structure and length of service. The first set of payments was made at the end of October 2002 with more in October 2003 and February 2004.
HMRC decided the company was liable to pay primary and secondary class 1 National Insurance (NI) on the payments. The company appealed claiming the payments were gratuities within the meaning of Social Security (Contributions) Regulations 2001 Sch 3 para 5 and therefore exempt from NI.
The First-tier Tribunal said a gratuity in these circumstances was a voluntary payment given in recognition of services rendered and the amount of the payment depended on the donor.
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