UKFTT 34 (2010) Colquhoun v HMRC

Termination payment, £30K exemption - Taxpayer won

Case Summary:

In 1996 Mr Colquhoun received £33K for a change in his contractual redundancy entitlement. His employer did not deduct tax from £30K of this. In 2005 he was made redundant and in his SA Return claimed £30K exemption on his redundancy payment- s403 ITEPA 2003. But the £30K relief in 1996 was based on wrong advice from HMRC. So was he entitled to another £30K in 2005?

“The payment which Mr Colquhoun  received (in 1996) undoubtedly related to his redundancy entitlement, but at that time, there was no termination of the holding of an office or employment or any change in its functions or emoluments such as was envisaged by s148(2); and in the opinion of the Tribunal, it would be stretching too far the taxation provision of that section if a payment to a continuing employee were to give rise to a charge to tax under Schedule E merely because the payment related to a change in the employee’s contractual redundancy entitlement which were in any case wholly contingent upon a future redundancy.

It follows that the non payment of tax on £30,000 in 1997 cannot be regarded as having arisen from the operation of s188(4) of ICTA; and that therefore the whole exemption of £30,000 referred to in s403(1) of ITEPA remained available to be set against the redundancy payment to which Mr Colquhoun became entitled in 2005.”