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TAX: ITEPA and discrimination payments

03 July 2015  

Charles Wynn-Evans reviews two important recent authorities on whether compensation for unlawful discrimination can be paid tax free

The correct tax treatment of a payment made by an employer to a current or former employee to settle a claim related to that individual’s employment can be of considerable significance. The extent to which a payment can be made without deduction of income tax can affect the level of settlement agreed between the parties. Applying an incorrect tax treatment can expose the employer not only to a liability for which it may not have budgeted, but also to costs and penalties for late payment of tax. There is also an increased risk of HM Revenue and Customs (HMRC) conducting a wider PAYE audit of the employer’s payroll compliance.

Additional Info

  • Case(s) Referenced:

    Mr A v The Commissioners for Her Majesty’s Revenue & Customs [2015] UKFTT 189 (TC)

    EMI Group Electronics Ltd v Coldicott [1999] EWCA Civ 1868

    Essa v Laing Ltd [2004] EWCA Civ 2

    Moorthy v Commissioners for Her Majesty’s Revenue and Customs [2014] UKFTT 834 (TC)

    Orthet Ltd v Vince-Cain [2004] UKEAT/0801/03

    Oti-Obihara v Commissioners for HM Revenue and Customs [2010] UKFTT 568 (TC)

    Shove v Downs Surgical plc [1984] ICR 532

    Timothy James Consulting Ltd v Walton [2015] UKEAT/0082/14/DXA

    Vento v Chief Constable of the West Yorkshire Police [2002] EWCA Civ 1871

    Walker v Adams [2003] STC (SCD) 269