Income tax may be levied on payments made for injury to feelings, the Upper Tribunal has held.
Moorthy v HMRC [2016] UKUT 13 TCC concerned the extent to which a payment made by an employer to settle a claim for unfair dismissal and age discrimination following termination by redundancy could be liable to income tax.
The employee, Moorthy, received from his employer statutory redundancy pay of £10,640 and, following mediation over his claim, £200,000 compensation for loss of office and employment.
A dispute arose between Moorthy and HMRC over whether compensation for injury to feelings was taxable.
Delivering her judgment, Mrs Justice Rose held that, while payment made “on account of injury to an employee” is tax-exempt, the “injury” must be a medical condition not injury to feelings.
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