Employment Income or Gift - The Case of Colin Collins v HMRC

The question as to whether or not monies are taxable as employment income is a common area of dispute in tax.  However, the First Tier Tribunal case of Colin Collins v HMRC involved a particularly unusual set of circumstances to which the question needed to be applied. The case itself involved the payment of $2 million by a former shareholder of a Company to the taxpayer who had worked for that Company, before subsequently leaving and later being re-employed under the new ownership. The precise facts of the case led the Tribunal to consider that the payment amounted to a gift by the former shareholder. HM Revenue and Customs had contended that it was a payment in connection with the taxpayer's former or current employment. Of significant interest is that the Tribunal set out in their written judgement a list of key points that lead them to their decision:

• Was the payment gratuitous?
• Was the payment expected?
• Was it proportionate (for example in terms of past salary)?
• Was there any regularity in the payments?
• Who made the payment?
• Was there a time delay in making the payment and if so was this delay cosmetic?
• What was the occasion/reason for the payment?

While the list is of interest, the old adage remains that each case must be considered on its own merits.