HMRC has amended its internal guidance regarding compensation payments for discrimination. While there was nothing incorrect about the old text it was
open to misinterpretation. The new version is more helpful and precise.
The new guidance explains that if, as an employer, you make a compensation payment, you must consider the tax position for each element. For example, it
might include not just an amount for injury to feelings caused by discrimination but also loss of earnings. Depending on whether the employee still
works for you or the payment relates to the termination of their employment, the different elements might be entirely outside the scope of tax; taxable
as earnings; or taxable as a termination payment (meaning that up to £30,000 is exempt).
HMRC has improved its guidance regarding compensation for discrimination payments made to employees. Employers must consider the tax treatment of each
element of the payment not just the whole.