Mix and match

Treatment of payment made in lieu of notice

After several years’ employment with ISG the taxpayer was made redundant. Under a compromise agreement his termination date was 31 January 2013 and he was paid £15 000 as compensation for loss of employment and £47 521 payment in lieu of notice. The first sum was paid gross but the employer deducted tax and National Insurance from the other.

The taxpayer allocated the £47 521 across his 2012/13 and 2013/14 tax returns on the ground that it covered a six-month notice period that straddled the two tax years.

HMRC said the whole amount should be assessed in 2012/13 because the sum was paid to him in that year. The taxpayer appealed.

The First-tier Tribunal noted that the taxpayer’s contract made no provision for payment in lieu of notice. The employer was not therefore entitled to end his employment by...