Sole trader client was injured when his lorry was shunted by another lorry.
After a long case he received an award for personal injuries and also an amount circa £25k for "loss of earnings which is claimed net of income tax and national insurance" (the quotes from the solicitor's summary of the award).
Does this have to go on the tax return? If so should it be grossed up? What about the notional tax and NI?
I am sure I'm being dim but it is January and any help would be appreciated.
knuckles
Replies (5)
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No
Compensation for personal injuries is not taxable.
The term 'net of tax and nic' is to reflect the amount of money your client is 'out of pocket' rather than to suggest that this should be grossed up in any way.
Does this help?
Knuckles
Have a look at BIM40105 - Receipts: Compensation/damages: is it a trade receipt, especially para no. 2 referring to the Gourley principle, from the HMR&C website.
David