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company exercised its right to terminate the agreement after one year and paid the stipulated sum of £10,000. The payment was held to be taxable. As Lord Evershed put it:¹³³

‘‘The contract provided that he should serve either for three years at an annual sum or, if the company so elected, for a shorter period of two years or one year at an annual sum in respect of the two years or one year, as the case might be, plus a further sum, that is to say it was something to which he became entitled as part of the terms upon which he promised to serve.’’

The taxpayer was also caught in Williams v Simmonds.¹³⁴ Here the contract was expressed to be ended in certain events and a sum then became payable under the contract. The taxpayer had the option, under the contract of treating the contract as not ended, but did not do so. Vinelott J pointed out that he had taken that option and then reached a settlement the sum would have been outside section 62.

If (7) is right, and especially if (4) above is determined in favour of the Revenue, a clear, but perhaps unfortunate, distinction arises between those who have the forethought to stipulate in advance what sums shall be due in the event of early termination of the contract, and those who are content to await events, between—to take a completely inappropriate analogy—the wise and the foolish virgins. Others, therefore prefer to as not what is the formal source from which the sum emerges but to ask for what the sum is designed to be paid. On this view, a genuine pre-estimate of loss should escape section 62 even though it is stipulated for in the contract and (4) is decided in favour of the taxpayer.

8. A payment which is not to compensate for the termination of one employment, but to encourage the start of another, will be treated as a taxable emolument under section 62 arising from the new employment. Shilton v Wilmshurst¹³⁵ highlights the unsatisfactory gap between payments taxable under section 62 (ex 19) and compensation claims. A payment by an employer for breach of a contract of employment (a golden handshake) is not taxable under section 62 because it is not paid under the contract, but for breach of it. Therefore, if an employer, R, breaks the contract and pays compensation, the payment will fall outside section 62. However, if R acts as a good employer and finds a new employment for the employee before the dismissal, the payment, which is made to the employee for taking up the new employment, will be taxable under section62. All turns on the reason

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