Jurisdiction(s):
United Kingdom

FTT (Tax): In-employment discrimination damages for lost opportunity not taxable as ‘earnings’ under ITEPA 2003 s 62 (L v HMRC)

Published on: 03 December 2024

Published by a LexisNexis Tax expert

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Article summary

L v HMRC [2024] UKFTT 1044 (TC)

An executive director taxpayer was entitled to base salary, a discretionary bonus and a long‑term incentive plan award. After being made redundant in April 2013, she brought proceedings against her employer alleging discrimination, harassment, unfair dismissal and unequal pay. The dispute was resolved in March 2014 by a settlement agreement under which the employer paid a lump sum expressed to comprise several elements: deferred cash compensation and incentive awards, a payment for injury to feelings, a sum in connection with the termination of employment, a payment to settle the discrimination claim, and an amount relating to the equal pay claim. Following the settlement, HMRC issued a closure notice amending the taxpayer’s self‑assessment return, treating those parts of the settlement attributed to financial losses said to flow from the employer’s ‘discriminatory actions’ as taxable earnings within section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). The taxpayer appealed to the FTT, contending that the portion of the settlement referable to discrimination during employment constituted damages and was therefore not chargeable under ITEPA 2003, s 62...

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