Income Tax - Earnings 'from' Employment

Question 1

Shilton v Wilmhurst 1991 STC 88

inducement to take up contract

Answer 1

 Shilton was a professional goalkeeper for Notts Forest who was being sold to Southampton.
 Notts Forest were paying Shilton £75,000 to go to Southampton and Southampton were paying him £80,000 to come to Southampton.
 £80,000 from Southampton was an inducement to take up employment so was unquestionably taxable.
 The question was whether the £75,000 paid from Notts Forest to Shilton to leave was taxable.
 Court of Appeal said it was not taxable as it is not in relation to the performance of his job, as Notts Forest had no interest in how he played at Southampton.
 HOL held, they were both inducement payments…”from being or becoming an employee” is the test for whether it is an inducement payment.

Question 2

Pritchard v Arundale 1972 1 Ch D 229, 47 TC 680.

Answer 2

 Accountant went to work for a big firm.
 As a result he had to sign a 7 year contract with the firm.
 The accountant prior to joining the firm had his own private practice, which would have to be terminated as he could not keep the private practice going if he was in a contract with the firm for 7 years.
 The company paid him a sum of money as compensation for this loss and it was held not to be taxable.

Question 3

EMI Group Electronics Ltd v Coldicott [1997] STC 137

(Compensation for dismissal: - not taxable under s 6 (although likely to be caught under the special statutory charge, below) unless contractually determined beforehand)

Answer 3

 PILON Clause.
 A PILON Clause is where the employee can be sacked on the day, but the company must pay the employees’ wages for the relevant period of notice. (3 months’ notice)
 Employee is in the exact same position as they would be had they been given their 3 months’ notice and were required to work for these 3 months.
 **in this case there are 2 groups in the same position.
 2 senior people were being laid off and 70 other lower level employees were being laid off.
 The 2 senior people had the PILON clause in their contracts and as a result the payment derived from contract of employment.
 The PILON clause anticipated such an event so was fully taxable.
 * It was clear that other 70 lower level employees were dismissed w/o being given notice. Such an action was not in their contract so they were being paid as a result of breach of employment contract SO WAS NOT TAXABLE.