Part of a termination payment was exempt from income tax as having been made on account of injury to the appellant’s feelings in the context of an age discrimination claim against his former employer.
The appellant was made redundant from his employment in March 2010. He commenced proceedings in the employment tribunal, alleging unfair dismissal and age discrimination. Mediation with his former employer resulted in a compromise agreement, under which the appellant received £200,000 during 2010/11 in full and final settlement of any claims against the employer.
In his tax return for 2010/11, the appellant included £200,000 as pay from the employment. He also entered £200,000 as ‘employment expenses’ on the basis that the payment should be tax-free. HM Revenue and Customs (HMRC) amended the return to remove the expenses of £200,000. HMRC also reduced taxable income by the £30,000
