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HMRC internal manual

Employment Income Manual

Employment income: sums paid to a continuing employee in lieu of remuneration

Section 62 ITEPA 2003

If an employee who is continuing in employment accepts a lump sum in lieu of all or part of the salary, wage, commission and so on to which they are entitled under the terms of their employment, the lump sum is taxable as earnings within Section 62 ITEPA 2003 (see EIM00515). It is ‘substituted remuneration’. One form of remuneration has been substituted for another.

Cases illustrating this principle are:

  • Bolam v Muller (28TC471) (see example EIM00675)
  • Wales v Tilley (25TC136)
  • Holland v Geoghegan (48TC482)
  • McGregor v Randall (58TC110).

The principle also applies where the earnings given up is a benefit in kind. In Bird v Martland (56TC89) the use of a company car was surrendered in return for a lump sum. The lump sum was held to be taxable as earnings within Section 62. A perquisite - the use of acar - was replaced by a sum paid in lieu of the continuance of the perquisite. The sum paid in lieu was therefore from the employment.