Redress payments included taxable interest

The taxpayers made restitution payments to individuals for wrongly refusing them continuing care full funding.

HMRC said the interest element of the payments was ‘interest’ for ITA 2007 s 874. It was intended to be compensation to the recipient for the time value of the money that they had to incur on social care and healthcare because they were not correctly assessed at an earlier date. It issued assessments to income tax.

The taxpayers appealed. They said no part of the payments fell within s 874 – so no withholding tax was payable – even if part of the payments had been calculated in the same way as interest and was labelled as interest. Broadly the taxpayers said the individuals had no right to payments until an eligibility decision had been made by the relevant care board so there was no debt due on which interest...