In K Murphy v HMRC [2020] UKFTT 461 (TC) (11 November 2020) the FTT found that amounts paid by an employer under a settlement agreement which related to legal expenses of the claimant employees (including the premium for a costs insurance policy taken out by the claimants) constituted employment income for income tax purposes.
Mr Murphy was a police officer with the Metropolitan Police Service (the MET). Mr Murphy and a number of other officers brought a group litigation action against the MET in respect of alleged unpaid overtime and failure to pay certain other allowances. The action was settled with the MET agreeing to pay a ‘principal settlement sum’ of £4.2m as well as ‘agreed costs’ together referred to as the ‘global settlement sum’. The settlement agreement provided for the MET to pay the global settlement sum as follows:
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