Payment is a reward

The taxpayer set up a new hedge fund the One Europe Fund (OEF) in 1999. A company was needed as a sponsor and it was agreed that OEF would operate under the umbrella of Tilney Investment Management.

Dexia a Luxembourg bank took over the management of the OEF in April 2001. The taxpayer took up employment the company which agreed in his employment contract to pay him an investment bonus in recognition of the business he was bringing – but he was made redundant 12 months later and did not receive the bonus.

The taxpayer brought proceedings against Dexia but settled the matter out of court in an arrangement that had the business paying its former employee an amount as compensation for not giving the investment bonus.

Dexia deducted tax from the payment as advised by HMRC – who later decided the payment...