HMRC Loses Appeal Against Spurs

Football is clearly becoming a wee fetish of HMRC. AccountancyAge reports that the Upper Tribunal has rejected an appeal from HMRC in a case relating to the taxation of termination payments made to football player employees of Tottenham Hotspur Limited.

In 2016, the First-Tier Tribunal ruled that certain termination payments made to two players contracted to the football club – Wilson Palacios and Peter Crouch – were not taxable as earnings from their employment. The tribunal also found that the payments were not subject to national insurance contributions (NICs).

Palacios and Crouch had received lump sum payments on early termination of their employment contracts, with both players joining Stoke City in a transfer deal. Palacios received £900,000 once the transfer was made, plus an additional £510,000 paid on 15 August 2012.

Crouch agreed a deal with Tottenham Hotspur under which he received a “termination payment” of £3m in three equal instalments following the termination of his employment with the club on 31 August 2011.

The Upper Tribunal said that the question was whether the payments were to be treated as general “earnings from employment” or an “emolument of the employment”, or as payment received in connection with the termination of employment. The Tribunal said that it was “common ground” that if the payments were “from an employment”, then the first £30,000 would be subject to tax, and the payment would be subject to NICs.

HMRC had argued that the payments “represented earnings from the players’ employments” and were therefore subject to income tax and NICs.

Tottenham appealed HMRC’s decision in 2015, advocating that the payments “represented compensation for the early termination of the players’ contracts”, and were therefore not “from” employment.

The Upper Tribunal upheld the decision of the First-Tier Tribunal. It said that there was a distinction between cases where “the entire contract of employment is abrogated in exchange for the termination payment” and cases where “the payment is made in pursuance of a pre-existing obligation to make such a payment arising under a contract of employment”. Both the cases of Palacios and Crouch “fell squarely” into the first category, the Tribunal said.

An HMRC spokesperson said that the Revenue believed it had applied the correct tax treatment to the payments and was pursuing its appeal of the First-tier Tribunal’s decision.

Tax does have to be taxing.

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