The First Tier Tribunal (Tax Chamber) in Moorthy v Revenue & Customs Commissioners has decided that some injury to feelings awards will be taxable.
Any payment made "directly or indirectly in consideration or in consequence of, or otherwise in connection with" the termination of employment was said to be taxable under s.401 Income Tax (Earnings and Pensions) Act 2003.
The First Tier Tribunal drew a distinction between cases where injury to feelings compensation is paid where it is, or is not, "directly or indirectly in consideration or in consequence of, or otherwise in connection with" the termination of employment.
No doubt this definition of Byzantine complexity will further darken the already murky waters for practitioners when attempting to grope for a settlement whilst trying to work out tax liabilities for their client.
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