Taxpayer loses case over taxing redundancy payment

A taxpayer has lost a case at the First Tier Tribunal (FTT) over the tax treatment of payments received on the termination of employment, when he argued that the payment should not be taxable as it was a compensation payment to settle a discrimination case.

Ruling in favour of HMRC, the FTT decided that the appellant, Mr Moorthy, who was made redundant by his employers Jacobs Engineering (UK) Ltd (Jacobs) on 12 March 2010, was subject to tax under Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), s401 on the full amount of payment.

The total payment was £200,000 minus the legislated £30,000 tax-free amount in cases of redundancy.

Lee Holloway, tax contributor at CCH said: ‘This case shows that the courts view ITEPA 2003, s401 widely and it is difficult to prove that payments such as Moorthy’s are not sufficiently linked to employment to be non taxable.’

At the tribunal, Moorthy claimed that the decision to make him redundant was due to age discrimination. This was contested by his employer.

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