Gifts haunted by the tax ghost of past employment

The tribunal case of OOCL UK Branch v HMRC was recently found in favour of HMRC, who had successfully contended that a bonus payment made by OOCL to all UK employees was derived from employment and therefore subject to income tax and National Insurance contributions (NICs). 

Mr Tung was a Hong Kong national who had successfully run OOCL from 1996 until 2018 when the company was sold to a third party. Mr Tung was a generous employer who had implemented corporate values of ‘Taking it Personally’. He was very involved in the business and with the employees and was known for being generous, for example, long standing employees were gifted a Rolex watch. Following the sale, Mr Tung emailed all employees internationally noting that the Tung family were very appreciative of their hard work and personally funded a discretionary bonus to all employees.

Following this communication, 99 UK employees were paid via payroll in September 2018. PAYE and NIC was deducted, and Mr Tung reimbursed all costs to OOCL. Following this payment, the OOCL finance team reviewed the position and concluded that the payments were not made ‘from’ or ‘by reason of’ employment and therefore neither PAYE nor NICs should have been deducted at source. The contention was this was a personal gift by and from Mr Tung which only needed to be paid via payroll from a logistical perspective. 

HMRC argued that the payments through payroll had PAYE and NIC deducted, and that as the position was only reviewed by the finance team after payment was indicative of the fact that the original payment was correct. The bonus was calculated with reference to employment status and length of service, and this again was indicative of the fact that it was a payment made from employment.

The tribunal ultimately concluded that the payment was a personal gesture of thanks from Mr Tung from the proceeds of the sale of his shares. However, the judges also agreed that the payments were made by virtue of the recipients’ status as employees, and are therefore properly subject to income tax and NICs.

In the run up to Christmas, there are key takeaways from this case to ensure that payments are classified correctly and to avoid an encounter with the tax ghost of Christmas past.