UK and International Tax news

Upper Tribunal Hears Termination Payment Case

Tuesday 9th June 2020

The Upper Tribunal has recently heard an appeal by the tax payer from a decision by the First Tier Tribunal in a case involving the tax treatment of a termination payment.

In Kieran Looney and Kieran Looney Associates v HMRC [2020] UKUT 119 (TC), the taxpayer [KLA] contended that a £1m payment made on early termination of a management training contract to an overseas commodities trading company was capital compensation for loss of a secret process in the proprietary performance management system.

However, the UT upheld the decision of the FTT that the payment was compensation/consideration for the cancellation of the contract and therefore a trading receipt of KLA. The UT added that there was nothing in the contract which transferred intellectual property or secret processes to the customer and nothing in the surrounding circumstances which indicated the payment was as the taxpayer contended nor was the claim supported on the facts.

On a separate issue appealed before the UT, payments under the contract of £3m were purported to be receipts of another UK company [KLCL] on the basis of an unwritten agreement between KLA and KLCL which was to transfer certain income and to KLCL. The UT however concluded that there was insufficient evidence from which the existence of the agreement could be inferred and dismissed the appeal.

The case is a reminder that the distinction between capital and revenue treatment is a fundamental facet of the UK tax system.  The correct characterisation of receipts is dependent on the facts with the onus on the taxpayer to provide adequate evidential support for his claim.

With regard to contractual arrangements, there must be sufficient written evidence to support their existence and subjective interpretations of the particular circumstances may not the accepted as facts.

If you would like more detail on this decision, please contact Keith Rushen on 0207 486 2378.


Contact Us