HM Revenue & Customs (“HMRC”) has handed down a key decision on a case of compensation for maladministration in a war pension case, which potentially clarifies the position for a substantial number of ex-service personnel in similar circumstances.

 Simpson Burgess Nash acts for a client (“X”) who was the victim of serial abuse as a young naval rating, resulting in his medical discharge from the service with a condition belatedly acknowledged to be severe post-traumatic stress disorder “PTSD”). For decades he was denied his entitlement to war pension, and was the victim of serial maladministration by the Service Personnel and Veterans Agency (”SPVA”), resulting in him having to undergo three Tribunals and wait over 10 years to receive his just entitlement of war pension awards.

 As a result of a finding of maladministration, our client received a significant, six figure sum in compensation, and sought our advice as experts in the taxation of personal injury awards as to the tax status of the compensation (the pensions were clearly tax exempt). Although X had been advised by the SPVA that their approaches to HMRC had revealed such compensation to be taxable, after considering the matter and the associated legislation on its merits, we concluded that in fact the compensation should be exempt from income tax.

 After a false start attempting to obtain a detailed ruling in the light of all the facts and associated law from general HMRC sources, we were fortunate through the good offices of a senior contact within HMRC to obtain an introduction to HMRC’s expert on the question of taxation of compensation awards. After considering the matter in depth, he agreed with our assessment of the situation and found the compensation to be exempt from income tax.

 This ruling has now been brought to the attention of the SPVA, which is advising relevant ex-service personnel that the tax status of their compensation appears to have been wrongly decided by HMRC. Hopefully this will result in a significant number of ex-service men and women finally receiving their full entitlement under the law, and Simpson Burgess Nash is delighted to have played a leading role in bringing this apparent injustice to light.

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