Contractual payment

The taxpayer was dismissed from his employment without notice. Under a compromise agreement he received a payment in lieu of notice including car allowance and pension contributions of £68 000. He also received back pay of £33 050 and holiday pay of £1 271. In his tax return he claimed the exemption under ITEPA 2003 s 403 for the first £30 000 of the £68 000.

HMRC said the exemption was not due. The taxpayer appealed.

The First-tier Tribunal said the issue concerned the nature of the payment made under the compromise agreement rather than the fact the taxpayer had been made redundant.

The judge referred to EMI Group Electronics Ltd v Coldicott [1999] STC 803 which involved a similar situation. In that case it was held that the payment in lieu of notice was taxable as earnings even though it...