Payment made as part of deal to make changes to pension scheme

The taxpayer wished to reduce the costs and risks associated with running its defined benefit pension scheme. After negotiations with unions and consultation with employees it put into effect an ‘integrated proposal’ under which its ‘retirement balance’ scheme would remain open but with increased employee contributions. It also included facilitation payments and a salary increase over two years to those affected by the changes. The facilitation payment was based on a percentage of the employee’s salary.

The taxpayer said the facilitation payment should not be taxable but HMRC disagreed. The matter proceeded to the First-tier Tribunal.

The tribunal did not accept the taxpayer’s argument that the payment was compensation for the loss of pension rights. The judge considered that Tilley v Wales [1943] 25 TC 136 did not apply because the facilitation payments did not compensate the employees for the loss of pension entitlements which had already...