No tax-free sum

The taxpayer took up employment with a start-up in September 2006. Before accepting his post he made sure his contract would provide suitable protection were he to leave the company.

He remained until June 2007. After negotiations he reached a compromise agreement with the firm under which he received £123 750 paid over three instalments.

The company deducted tax from each instalment. The taxpayer objected saying the first £30 000 should have been tax-free.

In his tax return for the year he reclaimed the income tax deducted. HMRC refused the claim.

The taxpayer appealed and argued the payment was made not under his employment contract but to settle his claims against the company for wrongful dismissal.

The First-tier Tribunal said there was no doubt that had the company made a payment to the taxpayer in lieu of notice in accordance with his contract...