Tax rules allow compensation paid on account of the death, disability and injury of the employee on termination of employment to be paid tax-free. In discrimination cases, courts often award compensation for “injury to feelings” as well as other compensation. In a recent case, the Upper Tax Tribunal decided that injury to feelings was not in the same category as death/disability. This means that awards for injury to feelings arising out of an employee’s termination of employment would in fact be taxable. However, awards for injury to feelings arising from discrimination during employment, will not be taxable. This is an important distinction for employers to make when thinking about their liability and making settlement payments.
United Kingdom