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Interim Relief Payments

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  Thanks to Naomi Cunningham of Outer Temple Chambers for preparing this case summary

Are payments under an interim relief order taxable in full as earnings under s62 ITEPA , or as payments in connection with termination under s401?

The latter, held the First Tier Tribunal (Tax) in T v HMRC. Ms T complained of automatically unfair dismissal, having raised a protected disclosure, and got interim relief pending the hearing of her claim. At the hearing, the employment tribunal found that she was unfairly dismissed, though not because of the raising of the protected disclosure. She settled her claim for compensation, and applied to HMRC for repayment of the tax that had been paid on the salary payments made under the interim relief order. She said they were payments in connection with the termination of her employment and therefore should have been tax-free up to £30,000.

HMRC disagreed. On Ts' appeal, the employment tribunal agreed with Ms T: the payments were only emoluments of her employment if they arose from her employment. They didn't: her employment had been validly and effectively terminated by her dismissal, and it stayed terminated; the effect of the order for interim relief was not to revive her employment, but to continue her entitlement to certain of the benefits she would have received had she remained employed.