Keith Gordon reviews the Upper Tribunal’s decision in a case that considers the taxation of payments made to resolve an employment dispute
It is well known that the rules for obtaining a tax-allowable deduction from employment income are particularly restrictive. The underlying policy reason for this can be explained on the basis that employers can usually be expected to cover costs incurred by their staff.
Therefore, subject to the relatively common exceptions such as reimbursed travel expenditure and fees for professional memberships, it will usually be the case that what an employer pays will be taxed as a receipt of the employee. As with all ‘general rules’, however, this short cut cannot be relied upon as a hard and fast rule. A potential exception was the subject matter of the recent Upper Tribunal decision in Murphy v HMRC  UKUT 152 (TCC).
The facts of the case