Termination payments: tax tribunal rules on payments under interim relief orders

14 July 2014

The First Tier Tribunal (Tax) has ruled on the question of whether payments under an interim relief order are taxable in full as earnings under Section 62 ITEPA , or as payments in connection with termination under Section 401?

We are grateful to Daniel Barnett for providing this summary of the case:

The latter, held the First Tier Tribunal (Tax) in Turullols v HMRC.Ms Turullols complained of automatically unfair dismissal for whistle-blowing, and got interim relief pending the hearing of her claim. At the hearing, the employment tribunal found that she was unfairly dismissed, though not because of the whistle-blowing. She settled her claim for compensation, and applied to HMRC for repayment of the tax that had been paid on the salary payments made under the interim relief order. She said they were payments in connection with the termination of her employment and therefore should have been tax-free up to £30,000.

HMRC disagreed. On Turullols' appeal, the employment tribunal agreed with Ms Turullols: the payments were only emoluments of her employment if they arose from her employment. They didn't: her employment had been validly and effectively terminated by her dismissal, and it stayed terminated; the effect of the order for interim relief was not to revive her employment, but to continue her entitlement to certain of the benefits she would have received had she remained employed.