ITEPA and Discrimination Payments

Charles Wynn-Evans reviews two important recent authorities on whether compensation for unlawful discrimination can be paid tax free.

The correct tax treatment of a payment made by an employer to a current or former employee to settle a claim related to that individual's employment can be of considerable significance. The extent to which a payment can be made without deduction of income tax can be made without deduction of income tax can affect the level of settlement agreed between the parties. Applying an incorrect tax treatment can expose the employer not only to a liability for which it may not have budgeted, but also to costs and penalties for late payment of tax. There is also an increased risk of HM Revenue and Customs (HMRC) conducting wider PAYE audit of the employer's payroll compliance.

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