Taxpayer asked for tax-free payment to be taxed

UK Inland Revenue Tax Form
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Of all the strange cases heard by the tax tribunals, few can be as strange as that of Paul Goodrum (TC06341), who applied to the FTT for a ruling that his termination payment was taxable.  

Here was a man who had been told repeatedly (in four separate letters) by HMRC that a sum of £200,000 paid to him in 2006 was not taxable; and yet he applied to the FTT in the hope of making it taxable!

What’s going on?

Goodrum retired from the Shell Group in 2006 due to ill-health. The trustees of the pension scheme granted him a “partial incapacity pension” (PIP), while the company paid him, among other things, the £200,000.

In discussions with HMRC, the company argued that this element of the payment represented an approximation of the difference between the PIP and a “total incapacity pension” (or TIP) between then and Goodrum’s normal retirement date.

HMRC was finally convinced when the company confirmed that the payment was not predicated on his waiving his right to a TIP, and agreed it was covered by the exemption in ITEPA 2003 s406(b).

Pension implications

So far, so good. However, by 2014 Goodrum appears to have realised that his final retirement pension would be twice as large if he had been granted a TIP rather than a PIP back in 2006. The pension scheme trustees were reluctant to pay him the extra.

As the judge noted: “If this tribunal holds that it should have been subject to tax that will, at the least, be a strong argument in his discussions with, or his actions against, the trustees of the Pension Fund for it will show that in effect he was receiving a higher incapacity pension prior to normal retirement age”.

As far as Goodrum was concerned, there was no downside to having the payment declared fully taxable under ITEPA 2003 Part 6 Chapter 2 – his compromise agreement with Shell had fully indemnified him against any tax arising on the payments made to him. Hence the appeal.

The decision

The judge was obliged to dismiss the appeal, since he had no jurisdiction to hear it.

The FTT exists to hear, among other things which have no relevance to this case, appeals against assessments to tax. The judge, try as he might, could see nothing in any of HMRC’s letters (to Shell or to Goodrum) which could be construed as an assessment.

Even if one of the letters had been an assessment, Goodrum’s appeal would have been out of time (the first such letter was in 2008, so the delay is not trivial). The FTT does have discretion to allow a late appeal, but the judge felt it would be an improper exercise of his discretion to allow this for two reasons:

  • If the appeal were to be heard, and if Goodrum were to be successful, it would still make no material difference to his tax liability (it might affect Shell’s liability to PAYE, but they were not parties to the appeal);
  • The true purpose of the appeal was to provide Goodrum with “some (uncertain) leverage in relation his approach to Shell and the Pension Trustee” - this would be an abuse of the process of the tribunal.


This was a very strange case indeed. The FTT refused to allow itself to be dragged into a private quarrel, and – to its credit – HMRC refused to snap up the offer of additional tax under dubious circumstances.

About Andy Keates


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13th Apr 2018 11:27

Great story. Must file this one away for my rare pub meetings with fellow accountants. "Did you hear the one about the guy who fought to have a tax-free payment taxed?"

Thanks (1)
13th Apr 2018 13:29

Greedy man.

As well as being very well paid-off, he then wanted even more money, despite his ceasing to have paid into the pension pot - due to having stopped working and been paid very nicely for not doing so.

A lot of people would count themselves lucky to have any settlement or index linked pension over which to argue in the first place.

Thanks (4)
13th Apr 2018 13:54

This is not too new/unusual e.g. due to PAYE treated as deducted at source by employer, s185(5) here:

So-called contractors often like to subsequently argue at tribunal that they are actually employees, so the employer gets stuffed with the primary PAYE tax liability and the rebranded employee escapes scot free (assuming no tax indemnity given by them to employer).

Thanks (1)
By Pozzer6
13th Apr 2018 15:28

Reminds me of a case many years ago where we agreed business use of motor vehicles and use of home with HMRC for a professional practice following which one of the partners decided that this was far too generous and we ended up in front of a very bemused inspector and commissioners!

Thanks (1)
13th Apr 2018 19:06

Were pre appeal (Review) procedures followed. Mr Goodrum would have been told since there was no assessment there would be no appeal.

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