Facilitation payment was liable to tax and National Insurance

The taxpayer E.ON UK Ltd made a one-off payment to employees who were members of its defined benefit pension scheme. This was a 'facilitation payment' made as part of an agreement under which members would in future pay increased pension contributions.

The First-tier Tribunal held that the payment was in exchange for agreeing to a change to future employment conditions. It was therefore ‘from’ the employment and liable to PAYE and National Insurance. The company appealed. The Upper Tribunal overturned that decision ruling the payment was made in return for the diminution of the expected future pension rights and therefore was not derived from the employment.

The Court of Appeal ruled that the First-tier Tribunal had been correct to find that it was not bound to apply the decision in Tilley v Wales [1943] 25 TC 136 which held that a lump sum received in...