“The Company (“BPI”) and Representatives from the BP plc (Air BP UK) non-unionised constituency have reached an agreement concerning the transition of transferring employees from BP plc to the S & J D Robertson North Air Ltd (“North Air”) reward and benefits scheme. The Representatives have completed a consultative exercise on 04 th February 2010 and the agreement has been accepted by the constituency. Upon the TUPE of BP employees on 01 st April 2010 (or date thereafter), in-scope employees will move to the North Air reward and benefit scheme and relinquish their access to the BP reward and benefit scheme (BP Pension Scheme, BP Variable Pay Plan/Annual Operating Bonus, UK Sharematch and Lunch Allowance) [Emphasis added] . In return the in-scope employees will receive a “buy-out” arrangement as follows: Payment 1 – May 2010 Employees will receive a lump sum payment, in the May 2010 payroll, equivalent to the following formulae: 1 Two years difference in Company contributions between the BP Pension Scheme and the North Air Group Pension Equivalent to 42% of base salary on 01 st May 2010 2a For graded employees: Two years difference in the Company planning assumption between BP Variable Pay Plan and the North Air Performance Bonus Scheme [not included in this decision for reasons of confidentiality] 2b For non-graded employees (employees at LHR): Two years difference in the Company planning assumption between BP Annual Operating Bonus and the North Air Airfield Operators Discretionary Performance Bonus Scheme [not included in this decision for reasons of confidentiality] 3 A payment equivalent to two years of Company contributions to UK Sharematch [not included in this decision for reasons of confidentiality] 4 A payment equivalent to two years of lunch allowance, only payable to employees currently in receipt of this payment [not included in this decision for reasons of confidentiality] Payment 2 – May 2011 Employees in service with the Company on 01 st May 2011 will receive a payment equivalent to 3 months base salary plus 30% in the May 2011 payroll.”
“As you are aware, BP plc (“the Company”) is intended to transfer its UK into-plan business to S & J D Robertson North Air Ltd (“North Air”) and your employment with North Air will transfer on 01 st April 2010 (“Transfer Date”). This is a result of the transfer of storage and into-plane operating agreements into North Air. In order to comply with theTransfer of Undertakings (Protection of Employment) Regulations 2006 , we are required to inform and consult with you about various matters in respect of the transfer. In compliance with the regulations we have consulted with the employee representatives of your constituency on the transfer and how this will affect you. Following this consultation both constituencies have completed a consultation exercise and have confirmed back to the Company the acceptance of the terms of the transfer. On the Transfer Date, your employment will transfer to North Air, who will become your new employer. Post transfer, you will remain on the same terms and conditions of employment as you were on with the Company, with the exception of the reward and benefits programme. The transfer to the North Air reward and benefits programme has been negotiated with your representatives and details of the “buy-out” from your previous scheme is attached to this letter. Your continuity of employment will not be affected and your service with the Company will count towards your period of service with North Air. The measures that the Company and North Air will undertake are confirmed in the “final agreement” document that is appended to this letter. If you do not wish to work for North Air you may object to the transfer. This would mean that your employment with the Company ends automatically (by operation of law) on the Transfer Date and you would not be entitled to any “buy-out” or notice pay.”
“BP Reward and Benefit “Buy-Out”
“1. Termination Your employment with BP plc will terminate at 12:59 hrs on the Termination Date. Your employment will transfer to S & J D Robertson North Air Ltd at 00:00 hrs on the 01 st April 2010. Your original date of joining BP will be maintained and your entire service with BP will be treated as continuous. … 6. Buy-Out Payments Subject to: (a) You and your solicitor signing this letter on or before26 March 2010 ; (b) receipt by your Employer of this letter signed by you; (c) receipt by your Employer of Schedule 1 signed by the Advisor; (d) you signing a new contract of employment with S & J Robertson North Air Limited on or before26 March 2010 ; and strictly conditional upon your compliance with the terms of this letter, your Employer will pay you on 21 st May 2010 the sum of£25,787 (the “Buy-Out Payment”) as compensation for the termination of your employment with BP plc and for thereby relinquishing access to the BP reward and benefits scheme. 7. Taxation The Buy-Out Payment will be paid subject to the deduction of such income tax and employee National Insurance Contributions as may be required by law. … 9. Settlement of Claims This agreement is made on the basis that you accept the terms set out in this letter in full and final settlement of all claims and rights of action against your Employer or any of its Affiliates arising out of your Employment or its termination in any jurisdiction in the world whether under English and/or foreign law including, but not limited to, any common law claim and the Specific Claims set out below which could be brought before any Employment Tribunal or court of law (but excluding any claim for personal injury or industrial injury of which you are not aware and ought reasonably not to be aware at the date of this letter, any claim for accrued pension rights or any claim to enforce the terms of this letter). You, your Employer and your New Employer each acknowledge that it is your express intention on entering into this agreement that it covers all claims arising out of your Employment or its termination whether known or unknown to one or more of you and whether or not the factual or legal basis for the claim exists, is known or could have been known to one or more of you at the date of this letter or in the future.”
“Finally, I wish to refer to Brumby (Inspector of Taxes) v Milner[1975] STC 215 ,[1975] STC 644 ;[1976] STC 534 ;[1975] 1 WLR 958 .[1976] 1 WLR 29 ,[1976] 1 WLR 1096 . I adopt, with gratitude and respect, the approach of Walton J in that case ([1975] STC 215 at 226,[1975] 1 WLR 958 at 964): ‘The crucial question is at once seen to lie within an extremely small legal compass. Did the terminal payments so received by Mr Milner and Mr Quick arise “therefrom” – that is to say, from their office or employment with the company?’ I pause at this stage to record that the payment in question, the terminal payment, was the final distribution of a trust fund which had been set up for the benefit of the employees of the company, which received its funds from the dividends and profits of the company, and distributed them year by year to the employees. But the event which gave rise to the appeal was either the amalgamation or cessation in its formal shape of the company, requiring the distribution of the funds of the trust. Later Walton J, summarising in particular the Hochstrasser case, said ([1975] STC 215 at 229,[1975] 1 WLR 958 at 968): ‘It appears to me that the correct test as stated by Lord Radcliffe is that, for any sum paid to the employee to be assessable to income tax, it must be paid to him ‘in return for acing as or being an employee’, and for no other reason.’ So, in my judgment, the approach that the court should take, and, indeed, that Knox J did take, is to consider the status of the payment and the context in which it was made. The payment was made to recognise the loss of rights. I am now going to paraphrase, I hope accurately, from the findings of the Special Commissioners and the employers’ letter and other records. The rights, the loss of which was being recognised, were rights under the employment protection legislation, and the right to join a union or other trade protection association. Both those rights, in my judgment, are directly connected with the fact of the taxpayer’s employment. If the employment did not exist, there would be no need for the rights in the particular context in which the taxpayer found herself. So, I start from the position that those are rights directly connected with employment. Purely by way of contrast, to underline that approach, if for instance the employers had for some reason or other best known to themselves objected to some social or other activity which their employees or some of them enjoyed, such as joining a golf club or something of that sort (I think Lord Diplock mentioned payments in the hunting field), but whatever it is, activities not connected with the employment, then a payment made by an employer to recognise the voluntary or, indeed, the compulsory withdrawal if the employer had sufficient influence with the committee of the golf club concerned, then that I can readily acknowledge would be a payment made to a person who was an employee but was not made in the circumstances which would satisfy the words of s181; that is that the payment must arise ‘therefrom”
“It is clearly not enough that the payment was received from the employer. The question is, was the payment an emolument from the employment. In other words, was the employment the source of the emolument?”
“[74] In my judgment, the right approach is, as Viscount Simon indicated in Tilley v Wales (Inspector of Taxes) (1943) 25 TC 136 at 150,[1943] AC 386 at 393, ‘to use the words of the statute’. The relevant statute is now ITEPA, s62(2) of which defines ‘earnings’. The fact that a payment has characteristics of capital may mean, as Miss Simler recognised, that the payment does not fall within this definition and, hence, that it is not taxable. If, on the other hand, the definition does extend to the payment in question, the payment will, as it seems to me, be taxable regardless of whether it might in other contexts be regarded as capital rather than income. That is probably why lump sums payments such as were at issue in Hamblett v Godfrey and Shilton v Wilmshurst are taxable. It is presumably also why the£200 payments made in the present case for loss of the beer allowance are accepted to be taxable.”
“[16] The application of that language in the case of a transfer falling with the TUPE Regulations is not entirely straightforward. This is because, in the case of such a transfer, and ignoring the terms of the TUPE Regulations themselves, there is clearly a cessation of one employment (in this case, Mr Hill’s employment by GM) and the commencement of another employment (in this case, Mr Hill’s employment by Saab City). However, the TUPE Regulations specifically say that a transfer under the regulations “shall not operate so as to terminate the contract of employment of any person employed by the transferor … but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee”
“[12] As I have said, the obligation of the Revenue to treat taxpayers fairly does not mean that they all have to be charged a tax, if it appears that the facts brings them within a particular statutory charge, when there may be all sorts of reasons why it is not practical in the interests of good management to do so.”
“Upjohn J., before whom the matter first came, after a review of the relevant case law, expressed himself thus in a passage which appears to me to sum up the law in a manner which cannot be improved upon. ‘In my judgment,’ he said, ‘the authorities show this, that it is a question to be answered in the light of the particular facts of every case whether or not a particular payment is or is not a profit arising from the employment. Disregarding entirely contracts for full consideration in money or money's worth and personal presents, in my judgment not every payment made to an employee is necessarily made to him as a profit arising from his employment. Indeed, in my judgment, the authorities show that to be a profit arising from the employment the payment must be made in reference to the services the employee renders by virtue of his office, and it must be something in the nature of a reward for services past, present or future.’ In this passage the single word ‘past’ may be open to question, but apart from that it appears to me to be entirely accurate. Applying the law thus stated to the facts of the present case, the learned judge held that the sum of£350 was not a profit ‘therefrom,’ that is, arising from the office or employment.”
“There is nothing in section 181 or the authorities to justify the inference that an ‘emolument from employment’ only applies to an emolument provided by a person who has an interest in the performance by the employee of the services which he becomes bound to perform when he enters into the contract of employment. If section 181 applies only to an emolument provided by an employer or by a third party who has an interest in the performance by the employee of his contract of service with the employer, there are difficulties in defining the "interest" which makes the employee liable to pay tax on the emoluments under section 181. Mr. Thornhill suggested that if the£75,000 had been paid by a shareholder in Southampton Football Club Ltd. interested in the dividends and capital value of his shares or if the£75,000 had been paid by a sponsor of the Southampton football team interested in obtaining valuable publicity or if the£75,000 had been paid by a philanthropic millionaire supporter of Southampton sentimentally interested in the fortunes of the club, then the£75,000 would or might have been an emolument from the employment of Mr. Shilton by Southampton. But, he said, as the£75,000 was provided by Nottingham Forest, who were only interested in the£325,000 payable if Mr. Shilton agreed to play football for Southampton, section 181 does not apply. I prefer the simpler view that an emolument arises from employment if it is provided as a reward or inducement for the employee to remain or become an employee and not for something else.”
“On this appeal, as the first step in their argument, it was submitted on behalf of the revenue that in law a payment made to an employee under the enhanced redundancy scheme (unlike a statutory redundancy payment) would have been taxable as an emolument from his employment. This submission is inconsistent with the actual treatment by the revenue of such payments in accordance with a long-standing statement of practice issued by the revenue dealing with such non-statutory redundancy payments. The practice was issued at the same time as a press release in conjunction with the announcement by the Chancellor of the Exchequer of his budget proposals on10 March 1981 . The press release recorded that the statement of practice clarified the ‘treatment of non-statutory redundancy payments.’ The statement of practice includes the following passage: ‘A payment made under a non-statutory redundancy scheme may in law be taxable in full under Schedule E if the scheme is part of the conditions under which the employees agree to give their services, or if there is an expectation of payment on their part. However, in practice the Inland Revenue accept that in the case of a genuine redundancy the only tax liability on lump sum payments made under redundancy schemes is under section 187 [of the Act of 1970, now section 148 of the Act of 1988], even though the payment may be calculated by reference to the length of service or the amount of remuneration, or is conditional on continued service for a short period consistent with the reasonable needs of the employer's business.’ (Section 148 is of no relevance to the present issue.) I recognise that the revenue are only departing from the position set out in the statement of practice for the purpose of establishing a step in their argument as to what they regard as being the correct position in relation to a payment made to ‘buy out’ an employee's contingency redundancy rights and not in relation to those redundancy rights themselves. Nonetheless I am concerned about the revenue adopting this approach since I do not understand the policy reasons for treating a payment genuinely made in lieu of receiving a redundancy payment in a different way from an actual redundancy payment. It is inevitable that if a payment is made in substitution for a payment which might, subject to a contingency, have been payable that the nature of the payment which is made in lieu will be affected by the nature of the payment which might otherwise have been made. There will usually be no legitimate reason for treating the two payments in a different way. However, I say no more on this subject since I am satisfied that the present practice of the revenue as described in the statement of practice accords with the position in law of payments made to an employee on redundancy under a non-statutory redundancy scheme.”
“[46] Sixthly, the relevant ‘weighing up’ exercise which was emphasised in the appellant’s submissions was in fact properly carried out by Judge Hellier at the correct stage, that is when he evaluated the evidence and reached his conclusions of the facts relevant to the question whether the payments were emoluments from employment. There was no further exercise of weighing up the two ‘dissociable reasons’ for the payment which the judge was required to conduct in order to answer that question. He had already answered the statutory question by his finding that the threat of industrial action was a substantial cause of the payments. The sufficiency of that finding of necessary relevant connection or link between the emolument and the employment is not cancelled out or diminished by the finding of the presence of another factor, such as the pension compensation for loss of a right unrelated to an emolument from employment.”
“Notwithstanding the gallant arguments of Mr. Coghlin on behalf of the revenue to the contrary, I am quite satisfied that the special commissioner and the Court of Appeal were right to conclude that this was not a situation where the aggregate sum, consisting of the two elements, should be regarded as being paid as an inducement to the employees to become or remain employed by H. & W.3. As Mr. Park submitted on behalf of the taxpayer, there was no need for any such inducement. Whether you approach the issue as being one to be resolved by construing the documents which resulted in the change in the terms of employment or look at the substance and reality of the situation which brought about the change in the conditions of employment, the total payment was made for the two separate identifiable considerations referred to in the letter of6 July 1989 and, in particular, in the employee's reply slip of acceptance. The payment was in consideration of (i) the new terms and conditions of employment and (ii) the termination of the enhanced redundancy scheme. It is true that neither of the two elements are exclusively referable to either element of the consideration. However, as was accepted by Mr. Coghlin, if the payments were being paid for two considerations, the special commissioner was entitled to apportion the payments between the considerations (as to which see Tilley v. Wales[1943] AC 386 ), and, this being so, it cannot be said that the apportionment adopted was wrong. In these circumstances on the documents and the evidence I have no difficulty in rejecting the revenue's first and primary contention.”