Readers’ forum: Tax treatment of compensation payment and fine

One of my clients runs a small business as a tree surgeon or arboriculturist and has several employees who help him.

Recently one of the employees left the electrical supply cable to the chipping machine lying on the ground in deep grass. The inevitable happened and another employee tripped over it fracturing his arm and suffering multiple bruises. The injured employee is now claiming compensation although he has continued to receive full pay during his period of recovery. My client is also concerned that a fine may be issued by the Health and Safety Executive (HSE).

Can Taxation readers advise on whether either or both of any compensation or fine would be deductible in calculating taxable profits?

I assume that the compensation would in effect be part of the employee’s remuneration although I am unsure whether income tax and Class 1 NI should be deducted from it...