Payment is taxable

The taxpayer worked for ICAP under a service agreement which was initially for three years after which it was renewable annually.

The taxpayer’s employment with ICAP came to an end in June 2003 and a compromise agreement was reached. According to the terms the company was to pay the taxpayer £37 500 as compensation for loss of employment.

On payment of the sum the company deducted income tax of £8 250. It did not apply the £30 000 exemption under ITEPA 2003 s 403(1).

The taxpayer obtained a repayment of £4 666 for 2003/04. HMRC subsequently decided the sum was incorrect and amended his tax return to recover the repaid tax and a further £3 733 which the department claimed was due.

ICAP told the Revenue that the payment had been a contracted payment in lieu of notice and represented six months pay on...