Unfair dismissal compensation

Unfair dismissal compensation

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I am involved in an unfair dismissal claim against an ex-employer.

Will any compensatory payment be subject to personal income tax if :
a) It is awarded by the Employment Tribunal or
b) If it is paid by the employer prior to the case being heard ?
Brian Robson

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By User deleted
21st Jun 2006 09:08

An interesting point in practice
I'd be interested to know if any other practitioners have had the Revenue try to disallow out of court payments in partial redundancy/detrimental change of contracts which have not gone to Tribunal and the Revenue have therefore argued that they are merely defered earnings, not compensation and therefore fall outside the £30k tax exempt limit. - or indeed if there have been any problems with a full dismissal/redundancy case?

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By Liam2002
21st Jun 2006 01:16

yes
The difference in amount between (a) and (b) represents the expected value of a more or less favourable judgement on the facts of the case, depending on the perspective.
An unfair dismissal claim, if proven, will result in reinstatement with loss of earnings, or loss of earnings plus compensation for loss of earnings that arise because you need to find another job.

The key element here is "loss of earnings", and earnings are subject to tax.

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By User deleted
01st Feb 2007 14:43

Tax enquiry...
... in respect of Rachels comments my client paid compensation out of court to an ex employee who was claiming unfair dismissal.

The inspector is arguing that 50% of the costs should be added back on the basis that awards for unfair dismissal contain a "punitive element".

Is he correct? Is there an arguement against this?

Thanks

Rob

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