Knowledge Hub
for Growth


Injury to feelings compensation payment taxable as termination payment

The Upper Tribunal (Tax Chamber) has held that a settlement payment for injury to feelings made in connection with a termination of employment was taxable as a termination payment.

The payment was made to settle all the taxpayer's claims against the employer, including claims for age discrimination arising during the redundancy selection process. This decision confirms that the tax treatment of compensation for discrimination depends on whether the discrimination is connected with the termination.

Compensation for discrimination that occurs solely during employment (even if paid on termination) is neither earnings nor a taxable termination payment and can be paid without deduction of tax. However, compensation for discrimination connected with the termination will be taxable as a termination payment. The Upper Tribunal also determined that the tax exemption for compensation paid on account of "injury" did not include compensation for injury to feelings. Employers must apply this interpretation of injury when deducting tax from the compensation payment (in excess of the £30,000 exempt amount). Otherwise, employers risk HMRC seeking under-deducted tax from them rather than the employee.


What next?

Please leave us your details and we’ll contact you to discuss your situation and legal requirements. There’s no charge for your initial consultation, and no obligation to instruct us. We aim to respond to all messages received within 24 hours.

  • This field is for validation purposes and should be left unchanged.

Your data will only be used by Harper James Solicitors. We will never sell your data and promise to keep it secure. You can find further information in our Privacy Policy.


Our offices

A national law firm

A national law firm

Our commercial lawyers are based in or close to major cities across the UK, providing expert legal advice to clients both locally and nationally.

We mainly work remotely, so we can work with you wherever you are. But we can arrange face-to-face meeting at our offices or a location of your choosing.

Floor 5, Cavendish House, 39-41 Waterloo Street, Birmingham, B2 5PP
Stirling House, Cambridge Innovation Park, Denny End Road, Waterbeach, Cambridge, CB25 9QE
13th Floor, Piccadilly Plaza, Manchester, M1 4BT
10 Fitzroy Square, London, W1T 5HP
Harwell Innovation Centre, 173 Curie Avenue, Harwell, Oxfordshire, OX11 0QG
2-5 Velocity Tower, 1 St Mary’s Square, Sheffield, S1 4LP
A national law firm

Like what you’re reading?

Get new articles delivered to your inbox

Join 8,153 entrepreneurs reading our latest news, guides and insights.

Subscribe


To access legal support from just £125 per hour arrange your free no-obligation initial consultation to discuss your business requirements.

Make an enquiry

X