Broad connection between payment and termination

The taxpayer’s employer offered her £82 135 in compensation for terminating her employment which she refused. She began employment tribunal proceedings but after mediation she accepted a settlement of £6m from the employer. PAYE was applied to all but £30 000.

The taxpayer appealed saying the payment arose from negotiations based on the discrimination and victimisation she had experienced during her employment with the bank and the wish of the bank to avoid the embarrassment of publicity. HMRC agreed to an element for this but taxed the balance as employment income within ITEPA 2003 s 401.

The First-tier Tribunal dismissed the taxpayer’s appeal. She appealed to the Upper Tribunal.

The issue was whether the First-tier Tribunal erred in law when it decided that the £6m payment was received indirectly in consequence of or otherwise in connection with the termination of her employment.

On the taxpayer’s argument...