| Employment Income: Emoluments |
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any sum to which (the substituted) section 225 applies and which is paid or treated as paid by a person carrying on a trade, profession or vocation, may be deducted as an expense. This wide authorisation apparently applies not only to payments which would otherwise be non-deductible by reason of being capital, but also payments for dual purposes or even those where the sole motivation of the payer was not for the purposes of trade. |
14A.5 Termination of Contracts: Compensation Payments |
Payments on the termination of an office or employment are governed by an untidy mixture of statute and case-law. The case-law turns on the scope of section 62. A payment which would fall within section 62 may be excluded by statute. A payment which escapes section 62 may be subject to the favourable tax regime in ITEPA section 403 TA 1988, section 148 and schedule 11 (replacing section 188 as from 1998). The following is, in part, an illustration of the principles in §14A.4 above, but the case-law is best treated separately. |
14A.5.1 Rules |
Payments will come within section 62 only if made in return for services. If an employee owns property adjoining his employer’s factory, sums paid by way of compensation under a claim for nuisance will not be taxable since they are not made in return for services. Problems arise where the claim arises out of the contract of employment. The courts might have followed the line taken under schedule D, cases I and II and held that sums paid in lieu of income are themselves income. However, under schedule E a different approach prevails and sums paid to settle genuine compensation claims will escape tax under section 62116 —although, as has been seen, such sums will usually come within sections 403 and 148. The cases considered below are full of fine distinctions, and some important issues are still unresolved. The cases therefore turn on their own facts and, in particular, on the construction of the particular contractual arrangements. |