Policy paper

Statement of Practice 10 (1981)

Published 3 November 1981

© Crown copyright 1981

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  1. Section 401 Income Tax (Earnings and Pensions) Act 2003 provides for the taxation of those payments on retirement or removal from an office or employment which otherwise are not chargeable to tax. Section 406(b) excludes from the ambit of section 401 any payment ‘made on account of injury to or disability of the holder of an office or employment’.

  2. The practice of HM Revenue and Customs (HMRC) prior to 1981 was governed by the view that ‘disability’ used in juxtaposition with the word ‘injury’ meant a loss of physical or mental health with which a person was afflicted suddenly at a particular time and which rendered him physically or mentally incapable of carrying out the duties which he had previously performed. A gradual decline in physical or mental disability caused by chronic illness culminating in incapacity to perform the duties of an office or employment was not regarded as ‘disability’.

  3. As a result of a decision given by the Special Commissioners on 6 January 1981 HMRC reconsidered its practice and now accepts that ‘disability’ covers not only a condition resulting from a sudden affliction but also continuing incapacity to perform the duties of an office or employment arising out of the culmination of a process of deterioration of physical or mental health caused by chronic illness.

Note: the text of SP 10/81 above is as it appears in HMRC’s Statements of Practice as published on 30 January 2012.

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