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Negative taxable earnings claims – an opportunity

7th February 2017

In 2014 the Upper Tribunal introduced the concept of negative earnings in the case HMRC v Julian Martin (“JM”).

The issue

JM entered into an employment contract which committed him to his employer for a period of five years in return for a fixed bonus payment. PAYE and Class 1 National Insurance were deducted from the gross payment of £250,000 with JM receiving £147,500 (net).

Before the five year period had elapsed JM notified his employer that he wished to terminate the employment, triggering a provision within his employment contract whereby he was required to repay a proportion of the bonus. The amount he was required to repay amounted to £162,500.

JM subsequently made a claim to HM Revenue & Customs to reclaim the income tax previously paid to the PAYE system.

The two options considered by the Upper Tier Tribunal included:

  1. Whether the original charge could be reversed or amended?
  2. Could the £162,500 be treated as negative taxable earnings?

The Upper Tier Tribunal held that there was no provision within the legislation to reverse the original charge but that the amount could be classed as negative taxable earnings. Relief is available in the tax year in which the negative taxable earnings are established, for example, when the clause within the contract is invoked and the quantum of the negative earnings are determined.

Recent developments

HMRC have recently updated their guidance to set out their position as to how they will interpret the decision of the HMRC v Julian Martin case.

The HMRC guidance will help potential claimants, both individuals and employers to determine whether a claim for relief is due in respect of any claw-back clauses which may have been exercised as part of an exit from a business by an employee.

How can haysmacintyre help?

Whilst the outcome of the case was concluded by the Upper Tier Tribunal in 2014 it may, where the relevant facts are present, be able to make a claim for relief in respect of any claw-back adjustments made since 6 April 2012.

If you should have any questions, please contact Nick Bustin, Director of Employment Tax on 0207 969 5578 or, or your usual haysmacintyre contact.