Spurs two, HMRC nil

Payments made to employees on termination of contracts

In August 2011 Tottenham Hotspur transferred two players to Stoke City before their contracts ended. A dispute arose over the tax and National Insurance liabilities of the payments made to the players in connection with the early termination of their contracts.

HMRC argued that the payments were earnings from employment and should be subject to tax under ITEPA 2003 s 9 and National Insurance under the Social Security Contributions and Benefits Act 1992 s 6. The club said the payments had been made to the footballers in return for giving up their rights to be employed until their contract expired. They were not made as a result of their contracts.

The First-tier Tribunal allowed the taxpayer’s appeal saying the payments had formed part of the mutual agreement to terminate the players’ contracts. HMRC appealed. It said the players’...