Taxation of Awards

[Thanks to Lionel Stride of Temple Garden Chambers for providing this case summary]

The EAT (HHJ Peter Clark) has handed down its decision in Yorkshire Housing v Cuerden, which is authority for the proposition that awards of personal injury and injury to feelings relating to a tortious act (such as a failure to make reasonable adjustments in a disability discrimination claim) that pre-dates the termination of employment are not taxable and, consequently, should not be subject to 'grossing up'.

It was further held that awards in respect of pension and earnings loss should ordinarily be grossed up by taking into account the appropriate marginal tax rates for each part of the award: it is wrong simply to apply the highest marginal tax rate to the whole sum.

The EAT declined to comment on the controversial observations in Orthet Ltd v Vince Cain [2004] IRLR 857 that awards for injury to feelings are always non-taxable regardless of when the discrimination occurred, which remains open to argument.