Employment income: inducement payments: golden hellos
Section 62 ITEPA 2003
A payment to induce someone to take up an office or employment is taxable as earnings within Section 62 ITEPA 2003 if it is a payment from the employment. Such payments are often called golden hellos and are usually made by the new employer. However payments made by third parties (including the old employer) will be taxable as earnings if they are paid to induce someone to become an employee.
In Glantre Engineering Ltd v Goodhand (56TC165) a company paid a lump sum to an accountant employed by a firm of accountants to induce him to become one of the directors. The payment was held to be taxable as earnings within Section 62 because it was an inducement to him to change his job and was referable to the services he would give in his new post.
In Shilton v Wilmshurst (64TC78) a footballer who transferred from Nottingham Forest to Southampton received payments from both clubs for agreeing to sign on with Southampton. It was held that both payments were taxable under Section 62 as earnings from the employment with Southampton. It was sufficient that both payments were made in return for the taxpayer becoming an employee of Southampton. In particular it was not necessary for the Inland Revenue to show that Nottingham Forest, in making the payment, had any interest in the taxpayer’s contract of employment with Southampton beyond his actual agreement to sign on.
However where a payment on taking up employment is said to be for the surrender of an asset or loss of a valuable right, see EIM00710.
It is important to establish all the facts that surround the making of an inducement payment (see EIM00720). (This content has been withheld because of exemptions in the Freedom of Information Act 2000)