Termination payments and benefits: Section 401 ITEPA 2003: exceptions: payments on account of injury or disability: meaning of disability: Statement of Practice 10/1981
Statement of Practice 10/1981
EIM13610 explained that there is an exception from the charge under Section 401 ITEPA 2003 for a payment or benefit made on account of disability. HMRC practice regarding the meaning of disability is set out in Statement of Practice 10/1981, as follows.
Disability means an incapacity to fulfil the duties of an office or employment caused either:
- by a sudden affliction (such as a heart attack), or
- by the culmination of a process of deterioration of physical or mental health caused by a chronic illness (such as chronic fatigue syndrome)
but not by the normal processes of ageing.
If, for example, an employee has suffered a heart attack and returns to work, any payment made on termination of employment at a later date may not be due to the disability. Only the reason for the payment is relevant.
How this exception operates was considered in Hasted v Horner (67TC439), see EIM13630.