Moorthy – Court of Appeal of England and Wales finds that non-taxable receipts of an employee for “injury” included damages received for hurt feelings
The U.K. statute essentially deemed employment income to include any amount received as a consequence of a person’s employment – but had a specific exclusion for a payment provided "on account of injury to… an employee." After being terminated, an executive brought an action for damages on grounds that included unlawful age discrimination - and then settled his action for £200,000. Counsel to HMRC agreed that £30,000 was allocable to his age discrimination claim, if it could properly be termed "on account of injury.”
Underhill LJ held that it “would accord with the natural meaning of the language” to find that this exclusion applied to an amount received as compensation for the taxpayer’s injured feelings for having been terminated on the basis of his age - so that the taxpayer received the £30,000 tax free.
Neal Armstrong. Summary of Moorthy v Revenue and Customs,  EWCA Civ 847 under s. 248(1) – retiring allowance.