The taxpayer was informed by his employer that he was being made redundant with immediate effect on 11 May 2011. He and his employer entered into a compromise agreement on 5 July 2011, under which the taxpayer was paid £68,800. The company deducted income tax from the whole payment.
The taxpayer’s tax return for 2011/12 subsequently declared the termination payment, and claimed exemption for the first £30,000 of that payment (under ITEPA 2003, s 403). Following an enquiry into the return, HM Revenue and Customs (HMRC) amended it on the basis that the £30,000 exemption was not available. The taxpayer appealed.
The First-tier Tribunal (FTT) found that the taxpayer had been made redundant, but considered that the important question in this case was the nature of the payment made to him under the compromise agreement.
The FTT noted that the taxpayer’s contract of
