Moorthy v Revenue And Customs [2018] EWCA Civ 847 (20 April 2018)

Moorthy v Revenue And Customs [2018] EWCA Civ 847 (20 April 2018)

A payment made in connection with the termination of employment, including compensation for injury to feelings arising from discrimination, is taxable under section 401 ITEPA 2003. The exemption in section 406 does not apply to injury to feelings, as 'injury' in this context means a medical condition. Therefore, the entire settlement payment (except for the statutory £30,000 exemption) is subject to income tax.

Citation
[2018] EWCA Civ 847
Parties
Appellant: Krishna Moorthy; Respondents: The Commissioners for Her Majesty's Revenue and Customs
Jurisdiction
England and Wales
Judgment Date
20 April 2018
Procedural Posture
Appeal From Upper Tribunal (tax and Chancery Chamber) / Court of Appeal Judgment
Outcome
Appeal dismissed
Legal Topics
Taxation of Termination Payments, Income Tax (earnings and Pensions) Act 2003, Section 401 ITEPA, Section 406 ITEPA, Compensation for Injury to Feelings, Employment Discrimination, Grossing Up of Awards
Tax Law Employment Law Discrimination Law Taxation of Termination Payments Income Tax (earnings and Pensions) Act 2003 Section 401 ITEPA Section 406 ITEPA Compensation for Injury to Feelings +2 more

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Parties

Krishna Moorthy

Appellant

The Commissioners for Her Majesty's Revenue and Customs

Respondents

Procedural Posture

Appeal From Upper Tribunal (tax and Chancery Chamber) / Court of Appeal Judgment

Legal Issues

  1. 1 Whether a settlement payment for unfair dismissal and age discrimination is taxable as employment income under section 401 ITEPA 2003
  2. 2 Whether any part of such a payment is exempt from tax under section 406 ITEPA 2003 as being on account of injury to the employee (specifically, injury to feelings)

Ratio Decidendi

A payment made in connection with the termination of employment, including compensation for injury to feelings arising from discrimination, is taxable under section 401 ITEPA 2003. The exemption in section 406 does not apply to injury to feelings, as 'injury' in this context means a medical condition. Therefore, the entire settlement payment (except for the statutory £30,000 exemption) is subject to income tax.

Court Disposition

Appeal dismissed

Orders

  • The entirety of the £200,000 settlement payment (except for the statutory £30,000 exemption) is taxable as employment income under section 401 ITEPA 2003.
  • No exemption applies under section 406 for injury to feelings.