A taxpayer loses her appeal despite her case relying on the UK Tax Authority's guidance.
The taxpayer was an employee of a UK subsidiary of an US company who had been awarded options over shares of the US parent company through an unapproved share scheme, meaning that the exercise of the options would be an income tax event rather than there being a single tax charge to capital gains tax on sale of the shares.
The plan rules required option holders to exercise those options within one month of cessation of employment within the UK company. The taxpayer was made redundant, but for US regulatory reasons, she was unable to exercise the options at that time. She was offered a cash payment "in full and complete settlement of your vested options", which was calculated by reference to the company's share price on a given date and the number of options she held. She accepted the offer, and the payment was made after deduction of basic rate tax.
The taxpayer took the view that the payment should be treated as if she had exercised the options and that the UK Tax Authority, HMRC's, guidance clearly demonstrated that in her case, the payment was not taxable. It is clear to see why the taxpayer sought to rely on HMRC's guidance. It was described by the Tribunal judges as "illiterate and as potentially misleading as any official publication that we have come across".
However, despite seemingly having some sympathy for the taxpayer, the Tribunal concluded that, under the legislation, the payment received by the taxpayer was clearly a benefit received by reason of employment and was taxable in full.
Clearly, it is important to highlight the inadequacy of HMRC’s guidance in this case. However, the case also serves as an important reminder that HMRC’s position has always been that its guidance is merely that. Taxpayers who rely on HMRC’s guidance rather than a proper consideration of the legislation do so at their peril.
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