Tax Status Of Loss Of Licence Insurance

[jonbo3001]

Tax Status Of ATC Loss of Licence Payment I would appreciate some information. I suffered suffered a mini stroke with an emergency hospital admittance. As a result, I have lost my medical licence to practice. My company operates a contractual loss of air traffic controller’s licence benefit scheme. This states that two years salary will be paid on termination of employment due to medical loss of the licence. The scheme is run by an insurer to which the company pays a premium. I am about to be terminated by my employer who has been excellent and ready to pay out the lump sum.

I always believed that any payment made under the loss of licence scheme would be exempt of income tax and national insurance contributions, as determined in the High Court ruling below.

EIM13610 - Termination payments and benefits: Section 401 ITEPA 2003: exceptions: payments on account of injury or disability: general
Section 406(b) ITEPA 200

A termination (or change) payment or benefit is excepted from tax under Section 401 ITEPA 2003 (see EIM13000) if it is paid wholly on account of:
• an injury to an office-holder or employee, or
• the disability (see EIM13620) of such a person.

EIM13630 - Termination payments and benefits: Section 401 ITEPA 2003: exceptions: payments on account of injury or disability: meaning of disability: Hasted v Homer
Section 406(b) ITEPA 2003
The High Court decision in Hasted v Horner (67TC439) established two tests that must both be satisfied for the disability exception to apply:
• there must be an identified medical condition that disables or prevents the employee from carrying out the duties of the employment. Medical evidence confirming the precise nature of the disability must therefore be seen in all cases and it must be clear that the nature of the disability prevented the employee carrying out the specific duties of the employment
and
the payment must be made on account of that disability and on account of nothing else. This means that the facts demonstrate that was the sole motive of the payer.

I believe that I have fulfilled the above two conditions. I have sent all my medical and consultant’s reports to HMRC, and my company has sent all my employment records and contract to HMRC to obtain clearance from HMRC of a tax free payment.

HMRC initially confirmed the tax free status by letter, but now have reconsidered their position and state that tax and national insurance has to be paid as the loss of licence benefit was part of my contract, and discounts the disability aspect.

I’d be grateful for any insight or viewpoints as to this decision, and whether I should consider an appeal. I was wondering how other ATCOs who had claimed under loss of licence for medical reasons were treated by HMRC.

Thanks so much.

Much appreciated.

[HEATHROW DIRECTOR]

I can't help with your questions but I do know of ATCOs who have suffered mini-strokes and recovered sufficiently to regain their medical certificates. Have you looked into that?

[confused atco]

Have you any contact with the Guild or Prospect?
Either may have some information.

[jonbo3001]

Tax Status Of Loss Of Licence

Thanks HD,

Appreciate the reply. I'm afraid it's not possible to regain my medical licence. Medical Branch just took one look at my scans and they didn't even invite me for tea and biscuits!! A few things caused great concern and I dont think they fancied the idea of me keeling over in front of a radar screen!! Difficult to take at first but I understand their reasoning.

Thanks confused atco,

That's a sound idea. I'm in the Guild and a member of Prospect so I will contact them and get some advice.

Appreciate your comments,

Best Wishes

[GMH]

I believe that the issue lies with the fact that the company provided you with the insurance as a benefit and that the payout is coming from the insurance company, and not your employer directly.

Therefore the payment you receive will not be a "termination payment" but rather will be the the settlement of an insurance claim that was triggered by your termination.

ie, if your employer were to pay you the lump sum themselves it would probably have been tax free but they aren't. They simply paid the insurance premiums over the course of your employment & the policy is now paying you for your claim resulting from the loss of your licence.

I know of a pilot that a similar thing happened to and he was taxed on his payout because he was the insured party (and therefore received the benefit directly), not the company.

[jonbo3001]

Tax Status Of Loss Of Licence

HI GMH,

Thanks for your comments
I see where you are coming from. I hadn't considered that point. That could well be the reason for the HMRC position, unfortunately.

Much appreciated

[jonbo3001]

HI GMH,

Just a small point, but probably irrelevant. Would that reasoning still apply if the insurance company settles with my company and the company then pays me the lump sum, rather than the insurance company settling directly with me and paying me the lump sum?

My company is paying me the lump sum after they have received it from the insurers.

Thanks again

[GMH]

I think it depends who the insured party is. If you are the insured but the payout is routed via your employer I think is taxable.

If your employer is the insured and they would have still paid you the lump sum even if the insurer rejected the claim (ie they were simply insuring against them having to pay out) then I would expect it to be tax free.

A clue might be if you were taxed (eg on p11d) for LOL insurance or if you were given details of policy terms or insurance certificate. If either is true then YOU were the insured party, not your employer.

[jonbo3001]

Tax Status Of Loss Of Licence

Hi GMH,

Thanks again for the comments. The policy is a group LOL arranged through Aegis and I believe that we are individually named. So, I reckon the ATCOs are the insured.

Going off at a tangent. I have been given 3 months notice as per contract which would normally be taxable. Would any tax reliefs be available due to termination due ill health?

Just wondering if Termination payments and benefits: Section 401 ITEPA 2003: exceptions: payments on account of injury or disability: meaning of disability: Hasted v Homer
Section 406(b) ITEPA 2003 would apply in my situation.

I don't suppose the Ł30000 tax relief for employment termination would apply in my case?

I'm trying to get advice and information shortly from an employment lawyer.

I believe the HMRC tax treatment of LOL insurance could have implications for ATCOs having LOL insurance through their employers

And thanks again. It is really so much appreciated

[GMH]

Sorry, not my area of expertise I'm afraid. My previous comments were just based on what a former colleague was told when he got his LoL settlement.

I don't think you'll be able to claim the PILON as tax free as it isn't a contractual redundancy payment, primarily because your termination is not due to your role being made redundant.

From what I have heard though, there are a number of airlines in discussion with HMRC over whether LoL premiums should be treated as benefits in kind...and have been in discussion for a number of years with no agreement reached with HMRC.

There is a chance you might be able to have some success but I think it will be a long process, potentially expensive (legal fees etc) and time-consuming. If you want to pursue it I would definitely seek advice from an employment lawyer though as they would hopefully have a good idea of your chance of success.

Best of luck though as success would help out a lot of people in similar situations at a time when money could be especally precious for them.

[jonbo3001]

Tax Status Of Loss Of Licence

Hi GMH,

Thanks again for the comments.

A couple of lawyer friends have confirmed your interpretations, so I think I will probably have to accept the ruling. I discussed appealing against the decision but they didn't hold out any success.The legal services of Prospect won't cover an income tax problem, and I'm just awaiting a response from GATCO legal services.

I realise that I am one of the fortunate ATCOs with LOL as many of our younger colleagues do not have that as an employment benefit. I am approaching retirement age in a couple of years, so I should be really thankful to be in this position. Financially, it would make sense to put as much of the lump sum as possible into my pension fund to minimise the tax implications by using the carry forward of unused pension allowance from the three previous tax years.

Thanks again for all the comments, Much appreciated

Best Wishes

[Atcham Tower]

First, my sympathy for your predicament.

I recall being told back in the 1990s about an ATCO who lost his licence, had a pay-out from LOL insurance, and then managed to claim disability allowance. This was on the grounds that he was unable to pursue the occupation for which he was qualified. This is all hearsay, of course, but it might be worth asking a few questions.

[jonbo3001]

Tax Status Of Loss Of Licence

Hi Atcham,

Thanks for your comments. I appreciate your concern.

I doubt if I would qualify for any state benefit. As ATCOs we are so specialised that, even though we are unable to continue with our air traffic careers, there are so many other careers or jobs we could pursue which have no medical restrictions.

I was just taken aback by the HMRC decision.

The Guild are having a look into the ruling for me so I will see what advice and information they may give.

Thanks again

[Atcham Tower]

Understood; I was just passing it on for what it was worth.
Anyway, I hope it all goes well for you in the end.
DS (EGGP retired)

[jonbo3001]

Ah, thanks Mr S***h!!

Much appreciated. Things working out ok

Hope you're enjoying retirement.

Your presence has been missed over the last couple of years!!

Best Wishes

[Satellite Man]

Man, I am so sorry for you

The loss of license insurance you have seems pretty good. As an ex-lawyer (but not in your jurisdiction) my advice would be to contact a lawyer. In Spain at least they will be able to give you pretty accurate advice for very few money or even for free if it might end up in litigation. You are talking about 2 years salary, very likely tax-free, and it is a good sum to protect and get legal advice.

[jonbo3001]

Hi Satellite Man,

Thanks for your comments. The loss of licence scheme that I have is very good. Unfortunately my colleagues who have joined my company in the last 15 years do not have this insurance within their contracts.

I have consulted some tax lawyers, so just awaiting a response and legal advice.

I appreciate your concern.

Best Wishes

[SThor]

Loss of licence

I wish you the best of luck jonbo3001!

Without intending to hijack your thread, with regards to loss of licence insurance, does anyone have any experience of third party insurance (not ones employer) eg. Lloyds, Hiscox etc etc?