Spencer Keen outlines some valuable guidance about the tax treatment of termination payments
Mr Moorthy received a payment of £200,000 in a compromise agreement after he was made redundant from his employment as executive director of operations with Jacobs Engineering UK Ltd (Jacobs) on 12 March 2010. He claimed that the £200,000 was not taxable because it had been paid to settle a discrimination claim.
HM Revenue & Customs did not accept that the entire settlement was tax free. HMRC argued that, with the exception of £60,000, the whole sum was taxable as a termination payment under s 401 of the Income Tax (Earnings and Pensions Act) 2003 (ITEPA 2003). HMRC accepted that £60,000 was exempt from tax because, according to them, £30,000 was specifically exempted as a result of s 403 of ITEPA 2003 and another £30,000 was exempted because it represented compensation for injury to feelings. As a result, on 13 August 2013 HMRC issued a closure notice indicating that Moorthy’s self-assessment had been amended to include £140,023 of taxable income. Moorthy
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