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Lump sum compensations – recent FTT
14 July 2021 Julia Ascott, Employment Taxes Specialist
In McAllister v HMRC, an employee was given a lump sum compensation payment after giving up the right to contractually receive an annual allowance. The employer had subjected the payment to PAYE/NIC but the employee claimed it was not:
‘from’ the employment as it was only paid to avoid an equal pay risk,
earnings/remuneration because it wasn’t in return for service and there was no requirement to remain within employment after payment had been received
The FTT held that the payment was clearly ‘from’ the employment because it was given in order to relinquish the employer’s obligation. Additionally, the payment was treated as earnings on the basis that:
it met the ‘replacement principle’; essentially, if you replace a taxable payment with another payment, that payment will also be taxable; and
it was an inducement to remain in employment, regardless of any formal obligations
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14 July 2021 
Julia Ascott, Employment Taxes Specialist
