Spurs spared NIC and £30k exemption applies to compensation to transferred players

Thu 14 Jul 2016

The First-tier Tribunal (FtT) has ruled that payments made by Tottenham Hotspur (Spurs) to Peter Crouch and Wilson Palacios to obtain their reluctant agreement to be transferred as part of a cost-cutting exercise were not sums that arose from their employment. As a result the payments were not subject to NIC and the first £30,000 of each player’s payment was not liable to income tax.

The payments were agreed under separate agreements before the players’ contracts were terminated and were made to induce them to accept termination of their existing contracts and accept transfers to Stoke City. The playing contracts allowed for termination by mutual consent which HMRC claimed was enough for payments to obtain that consent to be regarded as arising from the contracts. But the contracts did not specifically provide the players with the legal right to compensation in the event of Spurs terminating their contracts. Therefore the FtT ruled that the payments did not arise from the contracts of employment. The contracts also contained terms setting out the circumstances in which Spurs were entitled to terminate a contract but none of those conditions had been satisfied. Therefore the payments made were not within the range of payments that can be regarded as arising from the contract within the criteria laid down by the Court of Appeal in EMI Group Electronics v Coldicott ([1999] EWCA Civ 1868).

The FtT specifically reiterated the point made in many cases but sometimes overlooked, that the fact that the payment is agreed or made before the employment is terminated does not in itself make the payment taxable. Payment must be made for being an employee, a point that has caught out some agreements that obtained employees’ continued service until termination but which does not catch cases where the sole reason for the payment is to secure the employee’s agreement to terminate the employment, even if it is the employee who makes the first move by offering to go in return for a payment.

The case is also distinguishable from the oft-quoted case of Shilton v Wilmshurst ([1991] UKHL TC 64 78) which also involved a football transfer. The crucial difference between the cases was that in Shilton the payment made by the club he was leaving (Southampton) had the purpose of inducing him to join one other club, Nottingham Forest (Forest), which had approached Southampton offering a substantial fee. Southampton had not been minded to sell Shilton until Forest made an offer that was too good to refuse and they might not have been prepared to sell to any other club. Therefore that payment had the purpose of inducing Shilton to become an employee of Forest whereas Spurs were solely interested in inducing Crouch and Palacios to agree to be removed from Spurs’ payroll.