Whole of settlement was not subject to tax

The taxpayer was employed as a director paid an annual salary and discretionary bonus. She was made redundant but filed a claim against her employer for discrimination harassment unfair dismissal and unequal pay.

The claims were settled with the employer admitting no liability but paying the taxpayer a lump sum. It deducted tax and National Insurance on the basis that all but £30 000 of the total paid was subject to tax.

The taxpayer submitted her tax return on the basis that elements of the payment relating to discrimination were damages and were not liable to tax. HMRC disagreed.

The taxpayer appealed.

It had been agreed at a previous First-tier Tribunal hearing that the taxpayer’s appeal would be heard anonymously.

The First-tier Tribunal said it was clear the taxpayer had earned entitlement to the deferred consideration payment and despite the payment being made after she had...