In Hemingway v HMRC [2023] UKFTT 749 (TC), the First-tier Tax Tribunal (FtT) held that a payment received by an employee, Mr Hemingway, shortly after the employer was the subject of a merger, was taxable in full as being in connection with the loss of his share options, rather than a payment on termination of employment (which would have attracted relief on the first £30,000).

Following a takeover, Mr Hemingway's share options in the target company (Broadcom) were cancelled in return for a cash payment of £19,549.03. He then ceased working for Broadcom. The FtT upheld HMRC's determination that the payment was taxable under s.476 ITEPA (chargeable events in connection with an employment-related securities option), rather than s.401 (termination of employment). Section 476 takes precedence over s.401 by virtue of s.401(3).

The FtT accepted that s.401 also applies to payments in connection with a change in duties or earnings, and that Mr Hemingway's point that his employment rights were varied was arguable, but agreed with HMRC that the payment was intended and was most closely connected to the loss of the share options.

The decision by the FtT is a helpful application of an established principle, and a reminder that s.401 only applies where the payment is not otherwise chargeable to tax.

Selling a business can be a complicated process from beginning to end, with a lot to consider even after the deal is completed - as this case highlights.

As part of the GS Verde Group, our team can help you facilitate a smooth corporate transaction. GS Verde Group is a multidiscipline team with expertise in law, finance, tax, and communications who provide a comprehensive, end-to-end service for corporate transactions such as mergers and acquisitions. Our integration services also ensure a smooth, effective transition once the deal is complete, so you can manage your business with confidence.

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