The decisions in Gourley and Beach v Reed Corrugated Cases Ltd described in E4.832 were given before the enactment in FA 1960 of what became ICTA 1988, s 148 (now ITEPA 2003, ss 401–416), at a time when most awards for wrongful dismissal were totally exempt from tax. The introduction of legislation to impose tax liability on such awards (see E4.802BA), created doubts as to the correct way to calculate what, if any, deduction for notional tax should be made under the Gourley principle. Several such cases, however since have been decided by the courts.
In the 1963 Scottish case of Stewart v Glentaggart Ltd1, the damages awarded for wrongful dismissal exceeded the then exempt limit of £5,000 and were therefore taxable in part. Lord Hunter rejected the argument that Gourley did not apply because the award was partly taxable2, a conclusion which was subsequently approved and extended in the Parsons case (see below). Lord Hunter considered that the calculation of the deduction for notional tax should be made in two stages:
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