Spurs score twice against HMRC on terminations

Photo of Justine Ricccomini By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)

21 February 2018

On 24 November 2017 HMRC lost its appeal in the Upper Tribunal (UT) against Tottenham Hotspur Ltd.

The UT agreed with the judgement handed down by the First Tier Tribunal that the payments made to two footballers were not emoluments from the employment.


When Tottenham Hotspur needed to reduce its overall costs of employment it sought to secure transfers for some players.  The two players in question, Peter Crouch and Wilson Palacios, were offered lump sum payments (each of over £1m) in connection with the early termination of their employment contracts to go to Stoke City.

Key provisions existed in the contracts due to the rules imposed by FIFA and the FA concerning mutually agreed early terminations (Reg 13 of the Regulations on the Status and Transfer of Players 2015 and Reg C.1(k)(iv) of the Rules and Regulations of the Association: Season 2011-2012).

Tottenham Hotspur’s treatment of the payments amounted to them deciding the payments were “termination payments” because the payments had been made to the players in return for them leaving the club before their contracts of employment expired.  They subjected them to income tax under ITEPA 2003, s 401 on all but the first £30,000.  They also concluded that no National Insurance contributions (NICs) were due.

A game of two halves

HMRC contended that the payments were earnings under the players’ employment contracts and proceeded to issue determinations under reg. 80 of the Income Tax (PAYE) Regulations 2003, SI 2682, and decisions under s 8 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 (SSCBA 1999) to recover the tax and NICs it perceived as being due.

The taxpayer argued that the payments were not derived from the employment, but instead, that they arose out of its termination and thus represented early termination compensation, in accordance with the circumstances set out in the case of Henley v. Murray [1950] 15 1 All ER 908.  HMRC argued the payments should be treated as general earnings under sections 9 and 62 of ITEPA 2003 together with s 6 of SSCBA 1999 in accordance with the precedent set down in EMI Group Electronics Ltd v. Coldicott [1999] STC 803.

The Upper Tribunal confirmed there to be a clear distinction between:

  • a situation where the entire contract of employment is abandoned in exchange for the termination payment – in which case the payment is taxable only under ITEPA 2003, s 401 with the £30,000 exemption and not subject to NICs – and
  • a situation where a payment is made under a pre-existing obligation expressed in a contract of employment. In this case, the payment is generally accepted to be derived from the employment and subject to both income tax and NICs in its entirety.

In this case, the decision turned on the fact that although the contracts expressly provided for early termination, neither contract set out any conditions upon which a payment would be made in such an event.  The circumstances of the case meant that it fell within the first bullet point above because the players’ contracts had simply been breached in return for the termination payment.  HMRC’s appeal was then dismissed.

Would the new termination payments legislation have made a difference to this case?

The case was decided upon the existing legislation at that time and not upon the revised termination payments legislation as now enacted in the Finance (No.2) Act 2017.  It was acknowledged by the taxpayer’s representatives that, had this case been decided upon using the new legislation (which had not yet received Royal Assent), the amounts received would have been subject to income tax and NICs to the extent they exceeded £30,000.  The taxpayer contended that this reduced the importance of any decision made in this case in terms of its reliability in future case decisions – and this seems to have been a persuasive argument.

Read the full judgement.


  • Tax

Previous Page