The Upper-tier Tax Tribunal has held that payments made by an employer in respect of early termination of a fixed term contract pursuant to a mutual consent clause were not taxable as earnings and, as such, were not subject to national insurance contributions (NICs). The key test in the decision was whether the employment contract was terminated in exchange for the payment in question, or whether the payment was made pursuant to an obligation under the contract of employment.

It is worth noting that, from April 2019, the government has announced that taxable termination payments will be subject to NICs. As such, the applicability of this case will be short-lived.