Case of the final bonus: Should it be taxed?

A bonus paid after the employment is terminated doesn’t make that bonus part of the termination payment, and thus potentially within the £30,000 tax-free cap.

8th Sep 2020
Director Writetax Ltd
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Final bonus considered at tax tribunal: was it a termination payment?
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In T Lucas v HMRC (TC07809) the first tier tribunal (FTT) had to consider whether a bonus paid to an employee whose employment had already been terminated was a termination payment, and if so, whether it benefited from the £30,000 tax-free threshold.

The tax years under consideration were 2011/12 to 2016/17. The case was therefore decided on the rules that applied up to 6 April 2018, when the rules on the tax treatment of payments made under the termination payments were changed.

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Accountants & Business Advisers
By Gladstone
29th Sep 2020 17:18

Thanks Sarah for sharing the interesting case with some learning points for all.
The only thing that looks inconsistent is "Earnings are charged to tax in the year in which they are received. Although the bonus was paid over a number of years and taxed in those years, it was “earned” in October 2011 and therefore represented earnings for the year to 2011/12".
My understanding is that earnings are charged to tax in the year in which they are received but not in the year it is accrued or earned or entitled to receive which was applied in this case. Was there is anything different in this case that allowed FTT to make this taxable for 2011-12 year?

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