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Bonus is not a termination payment

07 September 2020
Issue: 4759 / Categories: Tax cases
T Lucas (TC7809)

The taxpayer was employed by a bank between November 2010 and July 2012 when his employment was terminated by mutual agreement. A dispute arose as to the guaranteed bonus payment he received. The taxpayer said it should be treated as a termination payment (ITEPA 2003, s 401) but HMRC said it was taxable as employment income (s 62).

The First-tier Tribunal said, had the bonus been paid in the normal way in the course of the taxpayer’s employment with the bank, it would have been earnings from his employment. The bank and the taxpayer had made a compromise agreement which maintained his entitlement to his previously accrued guaranteed bonus, although there was no provision for any compensation for loss of office. Because of this, the tribunal considered it understandable the taxpayer regarded the bonus as a termination payment. This was not the case. It was a bonus and taxable under s 62.

The taxpayer’s appeal was dismissed.

Issue: 4759 / Categories: Tax cases
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