Employees often make claims for injury to feelings as part of discrimination claims. If the discrimination does not arise from the termination, the payment is not employment income and falls outside of the income tax provisions (ie outside ITEPA 2003, including s 401).
However, if the discrimination arises as a result of the termination, the payment will be taxable under ITEPA 2003, s 401 because it is connected with the termination.
Although there is an exemption for termination payments made on account of death, injury or disability under ITEPA 2003, s 406, with effect from 6 April 2018, the legislation was amended to make it clear that 'injury' can include psychiatric injury but does not include injury to feelings1.
Injury to feelings—case law prior to 6 April 2018
The below cases discussed deal with the case law prior to 6 April 2018.
HMRC accepted in the case of Walker v Adams2 when the taxpayer appealed to the Special Commissioners of Taxation from an assessment to tax under what was ICTA 1988, s
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