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HMRC internal manual

Employment Income Manual

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Termination payments and benefits: Section 401 ITEPA 2003: exceptions: payments on account of injury or disability: meaning of disability: Hasted v Horner

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. In the typical case the payer will confirm that is so but the description given by the parties is not determinative if the facts indicate other motives exist. If, for example, the employer is unaware of the disability when the employee leaves, then the payment cannot be made on account of disability. Similarly, if any part of the payment is a reward for specific services, or due on termination regardless of the cause, it cannot be on account of disability. See EIM13637 for further information. It is frequently necessary to see all documentation to establish why the employer made the payment.

Note: in the usual case where the injury/disability has caused the termination, it is important to ensure that the medical condition and its employment consequences are considered by reference to the situation at the point of termination of employment and not at any other time. For example, evidence of a medical condition existing two years before termination is not determinative. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)