Lump sums paid in continuing employment
A lump sum payment can sometimes be made in lieu of all or part of an employee’s salary, wage, commission or other amounts to which they are entitled by virtue of their employment. Under these circumstances, the lump sum payments are taxable as earnings. The lump sums are referred to in the legislation as ‘substituted remuneration’ to mean that one form of remuneration has been substituted for another.
A number of cases have illustrated this opinion. One of these cases, Bolam v Muller set the principle that a lump sum paid was remuneration for services to be rendered and was taxable as earnings. The Judge, Atkinson J in this 1947 case stated that:
'It seems to me so plain. It is obvious… that the bonuses he would have received if they had been paid under the agreement would have been profits from his employment, and the mere fact that they agree on another form of remuneration does not alter its character.'
The same principle also applies where the earnings given up is a benefit in kind.
Newsletter
With our newsletter, you automatically receive our latest news per e-mail and get access to the archive including advanced search options!
Latest news
- The Employment Allowance – what you can claim
10/07/2025 - More...
As of April 2025, more employers can claim the increased £10,500 Employment Allowance thanks to relaxed eligibility
- The impact of frozen personal allowances
10/07/2025 - More...
The impact of frozen personal allowances often leads to fiscal drag, a situation where individuals pay more tax as their
- Goodbye remittance basis hello FIG
10/07/2025 - More...
Since 6 April 2025, the remittance basis of taxation for non-UK domiciled individuals (non-doms) has been replaced by