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How to get £600k tax free

16 June 2015 / Philip Fisher
Issue: 4505 / Categories: Comment & Analysis , compensation , Business , Employees , Income Tax

Treatment of compensation arising from a racial discrimination claim


  • A City trader claimed he was paid less than his colleagues and alleged racial discrimination.
  • Under a compromise agreement the employer paid him £600 000.
  • HMRC said the payment was taxable as earnings under ITEPA 2003 s 62.
  • The First-tier Tribunal said the sum was unrelated to earnings and free of tax.

Before readers get too excited about the prospect promised by the headline they should remember that there is no such thing as a free lunch.

Typically the only way that an employee will secure this kind of windfall is by undergoing years of mental torture.

It is likely that Mr A whose case has recently been heard by the First-tier Tribunal will have endured considerable trials and tribulations because otherwise the compensation paid by his...

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