Compensation payments linked to discrimination or disability claims may also be paid without any tax or national insurance deductions. Special care has to be taken when working out if any tax is payable. Compensation for ‘injury to feelings’ arising from a discrimination claim that is unrelated to termination of employment may not be taxable. This applies even if the employee is paid other compensation, say for loss of net income, which exceeds £30,000. However, compensation for injury to feelings that is connected to the termination of employment is likely to be taxable, following the most recent case law on this issue. It is possible to apportion sums but care must be taken and this is a key area of where the expert advice from Quantrills can make all the difference.
Compensation for any personal injury is normally paid gross without any tax or national insurance deductions, again, even if other compensation exceeds £30,000.