K+N refused leave to appeal – transfer payments are earnings

July 12, 2012

The Supreme Court has refused permission to appeal the Court of Appeal decision in Kuehne + Nagel & ors v HMRC [2012] EWCA 34, on the grounds that the case had been “fully argued at three levels with the same result, and essentially the same legal reasoning [and it] does not raise a new point of law”.

The case involved payments to employees on the transfer of a business.  The employees had threatened to strike because they believed that the new employer offered less generous pension rights. The payments made were said to be a payment in respect of loss of pension rights and also compensation for a lost beer allowance (this was the transfer of a drinks business!). The beer allowance element was agreed to be taxable as employment income.  The dispute was about the element relating to loss of pension rights.

The argument for the taxpayers was that the payment was solely related to the lost pension rights and so could not be regarded as earnings from the employment (this is a very condensed version of the argument!). However, the First Tier Tribunal held that the payment was held to be “paid and received as an incentive to work willingly and without industrial action for the joint venture company, it was an emolument from the employment. That it was also paid and received as compensation for the loss of the pension scheme does not affect this conclusion. It was paid in reference to the services that the employees rendered and was in the nature of a reward or inducement for future willing service.” Both the Upper Tier Tribunal and the Court of Appeal upheld this.

(By the way, the Court of Appeal judgment has a lovely, bemusedly tetchy, line: “Some of the submissions here and below on the meaning of the word “from” were strangely reminiscent of a debate (described as one of the most important in modern philosophy) which had “as its ostensible purpose, the explanation of the meaning of the word ‘the'” (see Roger Scruton’s account of Bertrand Russell’s “theory of descriptions” in A Short History of Modern Philosophy (1984) at page 273).”)


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