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HMRC internal manual

Employment Income Manual

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.