Taxation

Income tax (schedule E) - negotiated lump sum paid by employer to employee to terminate employment contract without contractual notice - chargeable to tax as emolument of employmentRichardson (Inspector of Taxes) v Delaney: ChD (Mr Justice Lloyd): 11 June 2001The taxpayer was employed under the terms of a service agreement which provided that the employment be for an indefinite period terminable by either party giving 18 months' notice.On 1 December 1995 the employer informed the taxpayer that his employment was terminated forthwith.

A settlement was negotiated between the parties, the taxpayer accepting a payment of 75,000.His employment in fact ceased on 28 December 1995.

He appealed to general commissioners against the tax inspector's refusal to grant relief for the first 30,000 of the payment under section 148 of the Income and Corporation Taxes Act 1988 (payments on retirement or removal from office not otherwise chargeable to tax).

The commissioners upheld the appeal on the ground that the payment was compensation for breach by the employer of the taxpayer's contract of employment.

The Crown appealed.

Bruce Carr (instructed by the solicitor of Inland Revenue) for the Crown.

The taxpayer did not appear and was not represented.Held, allowing the appeal, that under section 19(1) of the Income and Corporation Taxes Act 1988, schedule E tax was charged on emoluments of any employment; that a payment in lieu of notice made pursuant to a contractual provision was an emolument; that there was no basis for the commissioners' finding that the employers were in breach of contract; and that, accordingly, the payment was an emolument caught by section 19(1) and thus not eligible for the relief.