£6 million settlement was taxable
Mathur v HMRC. The taxpayer, M, worked for a bank. Her employment was terminated following alleged misconduct. M started employment tribunal proceedings but accepted a settlement of £6 million after mediation. PAYE was applied to all but the first £30,000. The taxpayer appealed on the basis that the payment was in respect of damages, e.g. to feelings, due to discrimination, etc.
Law. Where payments are made in connection with an employment, they are taxable and subject to PAYE unless a specific exemption applies, e.g. statutory redundancy pay.
Decision. The First-tier Tribunal noted that the upper band for payments for injured feelings was £44,000. It allowed this amount as exempt but held that the remainder was paid in connection with the employment.
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