This case examines compensation for loss of office
CA 1999, 71 TC 455; [1999] STC 803; [2000] 1 WLR 540.
The company had employed individuals on employment contracts, which provided that the employees may be dismissed with six months' notice.
Under the contracts, the company was able to dismiss the employees immediately and pay them the equivalent of salary in lieu of notice.
The employees were so dismissed and the company paid them six months' salary in lieu of notice.
The Inland Revenue contended that the payments were assessable as an emolument from employment; the taxpayer contended that the payments were non-taxable payments in lieu of notice.
It was held that the compensation was paid in accordance with provisions in the director's contract and was therefore taxable as emoluments from employment.
It should be noted that any provision for a payment in lieu of notice (PILON) in an employee’s contract or side agreement will render the payment fully taxable.
Non-contractual PILONs would generally be taxed under ITEPA 2003, s402 as compensation for loss of office and be taxable, subject to the £30,000 exemption afforded by ITEPA 2003, s403.
For more information visit the 'Related links' section on this page.