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Dismissal deduction

16 November 2010
Issue: 4281 / Categories: Forum & Feedback , Income Tax
An ex-employee has taken his employer company to court and won a claim for unfair dismissal, but is the amount paid allowable as a revenue deduction?

I have a limited company client who was recently taken to court regarding an unfair dismissal claim and unfortunately lost the case.

The company had to pay a substantial amount to the claimant and I wonder whether this may be included in the company accounts as a deduction (revenue item) or whether this should be treated as capital.

In the case ofWilson v Clayton [2005] STC 157 compensation for unfair dismissal was held to be within the £30 000 threshold i.e. it was treated as employment income in the hands of the recipient.

This suggests to us that payment is allowable as a deduction in the profit and loss account.

As the dismissal was wholly and exclusively for the purposes of the trade – i.e. the employee was not fulfilling his role within the organisation – this would seem to point to a legitimate...

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