Upper Tribunal Rules £6 million Payment in Settlement of ET Discrimination and Whistleblowing Proceedings was Taxable


Akash Nawbatt KC and Joshua Carey appeared before the Upper Tribunal (Tax and Chancery Chamber) in Shivani Mathur v HMRC [2024] UKUT 00038 which was called on to consider s401 Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). Section 401 ITEPA charges to tax payments that are received by a taxpayer, received directly or indirectly in consideration or in consequence of, or otherwise in connection with termination.



On 23 April 2015 Deutsche Bank AG (“the Bank”) entered into a negotiated settlement with the New York State Department of Financial Services (“DFS”) which included a consent order (the “consent order”). The consent order was made in connection with an investigation by DFS, a regulator of the Bank, into the manipulation of interbank offered rates.

The consent order contained a monetary settlement and “Employee Discipline” section which stated at paragraph 73: “However, certain employees involved in the wrongful conduct remain employed at the Bank. The Department orders the Bank to take all steps necessary to terminate the following seven employees, who played a role in the misconduct discussed in this Consent Order but who remain employed by the Bank….” On the same day the Appellant was told by the Bank that she was one of the seven employees “who played a role in the misconduct.”.

On 30 April 2015 the Appellant’s employment was terminated by her employer, DB Group Services (UK) Limited, a company in the group headed by the Bank.

Ms Mathur brought an Employment Tribunal claim which alleged various breaches of the Equality Act 2010 and the Employment Rights Act 1996. Whilst strictly speaking not all claims were “discrimination claims”, the Upper Tribunal used “discrimination” as a shorthand for the various alleged breaches. Ms Mathur ultimately settled her Employment Tribunal claim in the sum of £6,000,000.


The UT's Decision:

The UT considered three grounds of Appeal: (i) The width of the words “indirectly in consequence of” and “otherwise in connection with” in s401(1)(a) ITEPA (“the interpretation issue”), (ii) whether there was no evidential basis for finding the £6,000,000 payment was central to the termination (“the findings issue”), and (iii) whether the FTT wrongly rejected a claim to apportionment of the £6,000,000 for the charge to tax (“the apportionment issue”).

The UT dismissed all grounds of appeal.

In respect of the interpretation issue the UT found that the words in s401 ITEPA are to be construed broadly and that a termination payment does not require a “close and strong nexus”. It went on to find that the link between the payment and termination can be broader than a standard causative link. In the UT’s view, there was no break in the broad meaning of s401 ITEPA simply because Ms Mathur may also have made a “nuisance” out of herself by bringing the claim (as her barrister argued). To the contrary Ms Mathur’s payment was made to her because of her termination; it was central to her discrimination claim. Indeed, Ms Mathur availed herself of s413A ITEPA which permits costs spent in connection with taking advice on the termination to be exempted from the charge to tax.

In respect of the findings issue the UT noted that it was essentially an Edwards v Bairstow challenge. It rejected the submission that there was no evidence to support the findings made. To the contrary it found that there was ample evidence to support the FTT’s findings as to the centrality of the termination to the discrimination claims in the Employment Tribunal proceedings.

In respect of the apportionment issue the UT decided that no positive case or evidence or argument was advanced by Ms Mathur such that it would be open to her to argue apportionment. It followed that it was not open to her on appeal to challenge the FTT’s conclusions that she did not discharge the burden on her to establish that the disputed amount of the £6,000,000 payment had to be apportioned between taxable and non-taxable portions. The UT also accepted that the FTT did not err in law when dealing with the apportionment issue noting that there was a single undifferentiated lump sum.


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