In Tottenham Hotspur Limited v HMRC [2016] UKFTT TC05143 the First Tier Tribunal (FTT) found that payments to players were termination payments and not subject to NIC.
- In 2011 Tottenham reached an agreement with Peter Crouch and Wilson Palacios to make payments to them to leave the club and join Stoke.
- The players’ contracts were for a fixed term.
- The contracts included a provision for early termination in certain circumstances, which had not arisen, or by mutual agreement.
- The club treated the payments as compensation for early termination and not subject to National Insurance (NIC). The first £30,000 was treated as exempt from income tax.
- HMRC disagreed, saying that the payments were “from employment” and were therefore earnings fully subject to income tax and NIC.
HMRC argued that:
- As the contracts provided for termination by mutual consent these payments must flow “from” the contracts and therefore from employment.
- In order for payments to be a termination payment and not “from employment” there would need to be a breach of contract rather than termination by mutual consent.
Allowing Tottenham’s appeal, the FTT concluded that:
- As it is a basic principle of contract law that any contract can be terminated by mutual consent, the existence of the contract provision was not relevant.
- A breach of contract is not required in order for payments to be a termination payment.
- The club and the players could mutually agree to a payment for terminating the contracts without the payment arising from the terms of the contract.
Comment
At Budget 2016, the government announced that from April 2018, termination payments above £30,000 would be subject to National Insurance as well as income tax.
Links
Our subscriber guide to Termination, redundancy and leaving payments
Case reference Tottenham Hotspur Limited v HMRC [2016] UKFTT TC05143
Update
HMRC have appealed to the Upper Tribunal.
