This case concerned the tax treatment of a compensation payment and considered the meaning of “office”

Background

The taxpayer purchased a Post Office in 2003 and took up the position of sub-postmaster. Although not an employee of Post Office Ltd., she had contracted to provide premises and post-office services to Post Office Limited. Five years later Post Office Ltd. announced it would be closing her branch and offered her a compensation package worth £74,177. The taxpayer did not include this as taxable income on her 2008/09 return.

HMRC opened an enquiry into the return in the matter of the classification of the compensation package. The enquiry concluded that the compensation payment was chargeable to tax and upheld its decision after the conclusion of a statutory review.

The taxpayer claimed that the payment received was for loss of business and compensated partly for capital expenditure and partly for revenue expenditure. HMRC argued that the position of sub-postmaster was an office under section 2(1)(a) of the Social Security Act 1975 and that the appellant was engaged by Post Office Ltd. as holder of the office of sub-postmaster. Therefore, if HMRC's contention was upheld, the payment that was made as compensation for her loss of office would be chargeable to income tax by virtue of section 5 and section 401(1) ITEPA 2003.

Decision

The First Tier Tribunal (FTT) first considered the definition of office and considered Decision of the Social Security Commissioner in respect of “Mrs G”. It held that the position of sub-postmaster was in fact an office as “it had an existence independent of the person who held it and was filled by successive holders”. Therefore the next question was whether the compensation payment was in connection with the loss of office.

The FTT found that the taxpayer's contention in her notice of appeal that the payment was for loss of business was unsustainable and that the payment was in fact for loss of office. The Tribunal acknowledged that the taxpayer may have presented her argument that the payment was compensation for certain capital expenditure and revenue expenditure but that on the evidence before them there was nothing to displace their view that the payment was in connection with the termination of an office.

The FTT dismissed the appeal and upheld HMRC's amendment to the taxpayer's self-assessment.

The full text of the case is available at http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02020.pdf