Damages for injury to feelings are taxable… decision upheld by the Upper Tribunal

Both the HMRC and First Tier Tribunal’s view was that if the discrimination occurred before the claimant’s employment was terminated then the settlement would be exempt from tax. However under section 401, if the claimant’s injury to feeling occurred in relation to the termination of his employment it was not exempt from tax.

The claimant appealed again taking it to the Upper Tribunal. The Upper Tribunal noted that section 401 had a wide scope and nothing was suggested in the terms, whether alone or in connection to other parts of the ITEPA, that it excluded non-pecuniary awards, such as those for injury to feelings. The Upper Tribunals only concern was to establish whether the settlement had been received in consideration, consequence or in connection to the claimants termination of employment. This then fell well within the scope.

The Upper Tribunal also noted that the injury and or disability to an employee mentioned in section 406(b) refers to a medical injury resulting in disability or death and did not cover injury to feelings, thus not classifying them as payments or other benefits in relation to injury or disability to the employee.

It should be noted that employees might now start looking to seek higher compensation in terms of settlement for discrimination claims and claims made to HMRC relating to tax claims as a result of any compensation payment for injury to feelings.

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