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consequence of taking the employment save where the advantage or right being surrendered is inseparable from, or is closely connected with, the employment. The decision whether a particular payment is for services or by way of compensation is judged according to the reality and not mere words—the tests looks at causation and not consideration. |
14A.4.4.1 Starting the Job—Golden Hellos |
Where an employer, R, makes a payment to an employee, E, at the commencement of E’s service it is a question of fact whether this is a taxable payment for future services or non-taxable compensation for some loss. Remuneration for services is still remuneration for services even if it is paid in a lump sum in advance.88 Whereas it would be very difficult to demonstrate that periodical payments are anything but taxable under ITEPA, the fact that the payment is a lump sum is a factor that can be taken into account.89 |
In Pritchard v Arundale90 the taxpayer, A, was in practice as a senior chartered accountant when a business friend, F, persuaded him to leave the practice and join him in business, as joint managing director of a company. A received a full salary at the commercial rate but insisted upon a stake in the business. F, who owned all but three of the 51,000 shares in the company, transferred 4,000 to A. A was held not taxable on the value of the shares transferred. Although the contract of service stated that the friend agreed to transfer the shares in consideration of A undertaking to serve the company, a contractual expression of consideration was not conclusively determinative of causation, and in any case that expression did not mean that that was the sole consideration.91 Other factors92 were the date of the transfer being six months before service started, the nature of the transfer, that the transferor was not technically the employer but only the principal shareholder of the employer, and that the taxpayer’s surrender of his existing livelihood was expressed elsewhere in the contract. |