Michael Saunders v HMRC: The “Long Tail” of UK Employment Tax Confirmed

In a ruling that clarifies a long-standing gray area for globally mobile employees, the Upper Tribunal (UT) has dismissed the appeal in Michael Saunders v HMRC [2025] UKUT 00374 (TCC). The decision confirms that deferred incentive payments, such as Stock Appreciation Rights (SARs), remain firmly within the UK tax net if the underlying duties were performed while the individual was a UK resident. This judgment establishes that simply moving abroad before a payout does not shield income from HMRC if the “work” for that payout was done on British soil.

The Case: Michael Saunders v HMRC

The dispute centered on a payment of £1,236,956 received by Mr. Saunders in January 2017. The payment stemmed from SARs granted in 2013 by his former employer, Hibernia Atlantic UK Ltd. The core question was whether his non-resident status at the time of payment exempted him from UK tax.

Chronology of the Dispute

The Upper Tribunal’s Key Findings

The UT upheld the First-tier Tribunal’s (FTT) decision, focusing on several critical legal pillars:

• Earnings from Employment (s.62 ITEPA): The UT ruled the payment was “earnings.” It rejected the argument that the tax event occurred only at the grant of the SARs, noting that because they were not tradable and had no certain value at grant, the final cash payment was the taxable receipt.
• Connection to UK Duties: The court found the payment was inextricably linked to services performed while Mr. Saunders was a UK resident. It was effectively an incentive for duties performed in the UK.
• Split-Year Treatment Rejected: The UT held that general earnings for UK duties are taxable even if received during the “overseas part” of a split tax year

A Warning for “Good Leavers”

The Michael Saunders v HMRC ruling serves as a significant precedent for international executives. It confirms that UK tax liability for LTIPs, SARs, and performance bonuses has a “long tail.” For a portfolio manager or CEO moving to a low-tax jurisdiction like Dubai or Singapore, this case proves that the location of the bank account at the time of the “click” matters far less than where the desk was located during the vesting period.