Tax Status Of Loss Of Licence Insurance
Tax Status Of ATC Loss of Licence Payment I would appreciate some information. I suffered suffered a mini stroke with an emergency hospital admittance. As a result, I have lost my medical licence to practice. My company operates a contractual loss of air traffic controller’s licence benefit scheme. This states that two years salary will be paid on termination of employment due to medical loss of the licence. The scheme is run by an insurer to which the company pays a premium. I am about to be terminated by my employer who has been excellent and ready to pay out the lump sum.
I always believed that any payment made under the loss of licence scheme would be exempt of income tax and national insurance contributions, as determined in the High Court ruling below.
EIM13610 - Termination payments and benefits: Section 401 ITEPA 2003: exceptions: payments on account of injury or disability: general
Section 406(b) ITEPA 200
A termination (or change) payment or benefit is excepted from tax under Section 401 ITEPA 2003 (see EIM13000) if it is paid wholly on account of:
• an injury to an office-holder or employee, or
• the disability (see EIM13620) of such a person.
EIM13630 - Termination payments and benefits: Section 401 ITEPA 2003: exceptions: payments on account of injury or disability: meaning of disability: Hasted v Homer
Section 406(b) ITEPA 2003
The High Court decision in Hasted v Horner (67TC439) established two tests that must both be satisfied for the disability exception to apply:
• there must be an identified medical condition that disables or prevents the employee from carrying out the duties of the employment. Medical evidence confirming the precise nature of the disability must therefore be seen in all cases and it must be clear that the nature of the disability prevented the employee carrying out the specific duties of the employment
and
the payment must be made on account of that disability and on account of nothing else. This means that the facts demonstrate that was the sole motive of the payer.
I believe that I have fulfilled the above two conditions. I have sent all my medical and consultant’s reports to HMRC, and my company has sent all my employment records and contract to HMRC to obtain clearance from HMRC of a tax free payment.
HMRC initially confirmed the tax free status by letter, but now have reconsidered their position and state that tax and national insurance has to be paid as the loss of licence benefit was part of my contract, and discounts the disability aspect.
I’d be grateful for any insight or viewpoints as to this decision, and whether I should consider an appeal. I was wondering how other ATCOs who had claimed under loss of licence for medical reasons were treated by HMRC.
Thanks so much.
Much appreciated.