In a decision of interest to employers and tax professionals – and football fans – a tribunal has ruled that payments made to two professional players by a Premiership club in order to persuade them to accept the early termination of their contracts were not subject to Income Tax or National Insurance Contributions (NICs).
The club wished to reduce its wages bill and to generate transfer fees by arranging the players’ move to another club. They were reluctant to leave and payments were made to them in order to sweeten the pill. The club argued that those payments were compensation in respect of the early termination of their contracts. HM Revenue and Customs (HMRC), however, argued that the payments were earnings derived from the players’ employment and were thus chargeable to Income Tax and NICs.
The First-tier Tribunal (FTT) accepted HMRC’s arguments that the players’ fixed-term contracts had been terminated by mutual agreement, without any breach on either side. Ruling in the club’s favour, however, the FTT found that such payments are not inevitably derived from employment. They were made in return for the surrender of the players’ rights under their contracts.