David Taylor v Commissioners for Her Majesty's Revenue and Customs

Facts

The appellant received a lump sum payment of £11,953.85 in early 2004 from his then employer, Barkland Limited, which had contracted to make contributions into his pension scheme but had failed to do so. As the company was going into liquidation, it offered the payment as an ex gratia sum in respect of the missing pension contributions. The appellant entered the payment on his tax return under "Reliefs", believing it fell within the £30,000 exemption as damages for breach of contract. He was made redundant shortly afterwards but continued working for the company for the remainder of the tax year. HMRC opened an enquiry into his return on 11 April 2006 and, on 13 December 2006, amended it to treat the lump sum as taxable, resulting in additional tax of £4,782 becoming due rather than the repayment the appellant had claimed and been paid. The enquiry officer, having been told by a former director that the payment was a performance-related bonus, also imposed a penalty for negligent completion of the return. By letter of 27 August 2009 HMRC accepted that the payment had in fact been made in lieu of the missing pension contributions, but maintained that, having been paid directly to the appellant rather than into the pension scheme, it remained chargeable to tax. The appellant appealed both the amendment and the penalty to the First-tier Tribunal.