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HMRC internal manual

Employment Income Manual

Employment income: earnings from employment: sums paid to an employee for not resigning, or for continuing to serve in the employment: example

Section 62 ITEPA 2003

Prendergast v Cameron (23TC122)

Cameron, who had been a director of a limited company for many years, told his fellow directors that he intended to resign. In the interests of the company, they asked him not to serve notice of resignation and said that if he agreed to stay on the company would, within a certain time, pay him £45,000. They would set down the undertaking to do so in a formal deed. The company entered into a deed which recorded the agreement, and under which the company undertook to pay Cameron two sums of £35,000 and £10,000. These sums were duly paid. Cameron continued in office, devoting less time to the company’s business, and receiving a reduced salary.

It was held that the £45,000 that Cameron received was taxable as earnings within Section 62 ITEPA 2003. It was paid as consideration for his agreement to continue to serve as director and was therefore from the office. Viscount Caldicott said:

“I can see no difference between a promise not to resign and a promise to continue to serve as a director.” (page 143)

The fact that the remuneration was paid as a lump sum did not matter. Lord Romer said:

“If a company chooses to pay a director’s remuneration in a lump sum … the sum nevertheless represents income, whatever its amount, and will be taxable as such. Remuneration which, if paid by instalments over a number of years, would be income, is income though paid once and for all in a lump sum.” (page 150)