Readers’ forum: Will compensation payment be tax free?

My client is a manufacturing business.

Recently a factory worker had an accident at work which has resulted in him not being able to stand up all day to work on the production line. The company doesn’t want him to lose his job and wishes to give him a role which will involve lighter duties such as some admin light cleaning and maintenance.

The pay rates for that role are much lower than for the previous production line role. The client’s financial director (FD) has suggested that a lump sum payment could be made to the worker free of tax as a payment on account of disability (ITEPA 2003 s 406(b)).

Although the employment is not being terminated there is a change in duties. My initial view is that the FD is right but I am concerned that the lump sum is essentially an advance...