Are damages for injury for feelings taxable? The Claimant in Moorthy –v- The Commissioners of Her Majesty’s Revenue and Customs pursued a claim of unfair dismissal and age discrimination relating to his dismissal. By way of settlement he received £200,000 with his employers treating the first £30,000 as tax exempt and deduct tax and basic rate for the remainder.
The Claimant treated the balance in his tax return as being tax free however the HMRC disagreed.
The Upper Tribunal held that Section 406(b) of ITEPA treats a payment “on account of injury to an employee” as not being taxable. However in such circumstances it had to be a medical condition such as death or a disability. They went on to hold that this did not include injury to feelings which are taxable. We will let you know if there are any further developments on this point.