Payment to pension scheme members was not liable to PAYE

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' paid 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 concluded that the First-tier Tribunal had erred in law in limiting the application of the principle arising from Tilley v Wales [1943] 25 TC 136 to accrued pension rights only and not future pension rights. That principle was that the element of the payment in respect of the reduced salary should be treated as a taxable emolument but the part in respect of the commutation of pension rights was...