Liability of lump sum payment by employer

The taxpayer was a fee-paid judge who retired in January 2016. He sued his employer the Ministry of Justice (MoJ) for discrimination against part-time employees.

After negotiation the parties agreed the taxpayer would receive a payment for a historic underpayment relating to his fees of £55 045.

The MoJ deducted PAYE of about £22 000 from the sum. In his 2014-15 self-assessment tax return the taxpayer said no tax was due because the payment was not employment income but instead represented damages for the statutory tort of breach of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.

HMRC disagreed saying the sum was a payment to make good past entitlement and would have been chargeable to tax as employment income.

The taxpayer appealed.

The First-tier Tribunal said a payment could be an emolument even when there was no contractual entitlement to it (Laidler...