Ingrid Simler QC and Akash Nawbatt successful in test case on taxation of employment income
The Court of Appeal has handed down judgment in Kuehne & Nagel Drinks Logistics Ltd and Others v HMRC, a case described by Mummery LJ as a “test tax case”.
The judgment is likely to be of interest to both tax and employment practitioners. It concerned whether payments made to 2000 employees following the TUPE transfer of their employment from Scottish & Newcastle UK Limited to Kuehne & Nagel Drinks Logistics Limited were liable to income tax and to National Insurance Contributions (NICs). Both the First-tier Tribunal and the Upper Tribunal held that the payments were liable to income tax and NICs. The Court of Appeal dismissed the employees’ appeal holding that the payments were liable to tax as “earnings…from employment” for the purposes of s.9 of the Income Tax (Earnings and Pensions) Act 2003 and were also liable to NICs as being “earnings…derived from an employment” for the purposes of s.6 of the Social Security Contributions and Benefits Act 1992.
The Court had to address whether a payment can be “from employment” or “derived from an employment” where there are two causes or reasons for the payment – one from employment (in this case to avoid strike action) and one from something else (in this case compensation for loss of valuable pension rights). The Court held that the fact of employment does not have to be the sole or dominant cause but employment has to be a “sufficiently substantial” cause to characterise the payment as one from employment. Accordingly, even if on the findings of fact the two causes were of equal weight, the Court of Appeal said, it would be impossible to say that that the payments were not from employment even though they were also substantially attributable to a non-employment cause.
Ingrid Simler QC and Akash Nawbatt represented HMRC.
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