The tax authority argued that David Venables, former chairman and executive director of construction company Ven Holdings should have paid tax on the £530,591 which he received from the company as a retirement lump sum, as he returned to work after his retirement due to ill health, informally assuming the role of managing director.

However, the four Law Lords ruling on the case overturned a Court of Appeals verdict on the case which stated that Mr Venables should pay his £230,000 tax bill. The Lords announced last week that they accepted "that the taxpayer was both a paid employee and an unpaid director of the company on June 30, 1994," but that he had "retired from service as an employee on that date".

Observers have suggested that this ruling may set a precedent for other UK taxpayers looking to continue working after retirement. However, an Inland Revenue spokesman told the Telegraph at the weekend that:

"The Inland Revenue is carefully considering the detail of the judgement. Whether the Venables decision will affect other cases where an element of employment continues will depend on the circumstances of each case."