SE13630 - Termination payments and benefits: Section 148 ICTA 1988: exemptions: payments on account of injury or disability: meaning of "disability": Hasted v Horner

Paragraph 3(b) Schedule 11 ICTA 1988 (Section 188(1)(a) ICTA 1988 for payments and benefits received before 6 April 1998)

The High Court case of Hasted v Horner (67 TC 439) established two tests which must both be satisfied for the disability exemption to be given:

• 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 payer should confirm that the payment was made on account of the disability and for no other reason. 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. It is frequently necessary to see all documentation to establish why the employer made the payment.

Note: 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 say two years before termination is not determinative.

See SE13640 regarding certain cases that must be reported to Employment Income Technical before exemption is agreed.