Words and Phrases - "injury"

Following a restructuring of his employer, the taxpayer was made redundant and terminated in 2010. Following a mediation, the taxpayer settled his claim for unfair dismissal and unlawful age discrimination for the sum of £200,000. The two issues were "the taxability issue" --whether the settlement sum was taxable employment income as "payments and other benefits which are received [by the relevant person] directly or indirectly in consideration or in consequence of, or otherwise in connection with- (a) the termination of a person's employment"; and, if so, "the exemption issue" --whether the settlement sum (or any part of it) was taken out of the above charge to tax by a statutory exemption (“s. 406”) for a payment provided "on account of injury to … an employee", the alleged injury being the injury to the taxpayer's feelings sustained in the context of his age discrimination claim.

After finding against the taxpayer on the first issue, Underhill LJ found that £30,000 of the £200,000 was eligible for the exemption, stating (at paras. 79-80):

It seems to me that to treat an award of damages for injured feelings, in respect of actionable discrimination on grounds of age, as falling within the exemption in section 406 would accord with the natural meaning of the language of the section, would provide parity of treatment with similar awards made in a continuing employment relationship, and would not be objectionable on policy grounds. The Vento guidelines show that such awards, if made by a court or tribunal, must be relatively modest in amount, and any attempts to obtain exemption for much larger sums under the guise of a settlement of a discrimination claim would no doubt be rigorously scrutinised by the FTT. The absence of any policy objection to the exemption of payments within the Vento guidelines is brought out by the fact that, until quite recently, HMRC themselves appear to have accepted in many cases that section 406 does indeed apply in those circumstances, and by their offer in the present case to allow exemption for £30,000 of the payment made to …[the taxpayer] in order to reach a settlement with him.

For the avoidance of doubt, I should make it clear that I express no view on the question whether the exemption might also in principle apply to payments made in respect of injury to feelings where no statutory basis for such a claim could exist.