The Foskett Panel - Taxation of Customer Awards

Taxation of Customer Awards

It has been confirmed by HMRC that all Customer awards are subject to UK taxation. As explained below, some tax may be borne by the Customer and some will be covered by funds receivable from LBG.
UK taxation applies to:
1. An award for D & C losses following a Final Decision from the Foskett Panel (‘Panel Award’) and
2. A ‘Fixed Sum Award’ accepted by a Customer who elects to leave the Re-Review after receiving a Victim Status Decision.

Our role and objectives as regards tax on Customer awards

As Customers who have received an award (whether a Panel Award or a Fixed Sum Award) will know, the taxation implications involve complicated questions of tax law. These complications arise from the way HMRC views and treats each type and particular part of the award. Although there have been extensive discussions between the Panel’s team, LBG and HMRC, ultimately HMRC decides, for its own purposes, how to treat any award and the Panel have no influence over that decision.
The objective of the Panel is that, so far as possible, the Customer receives an award such that the Customer retains, after taxation of the award, the specific amount of loss specified by the Panel (the ‘Panel’s Taxation Objective’). Another key objective is to reduce the level of uncertainty for Customers about how their award will be taxed and minimise the risk to Customers of inadvertent non-compliance with tax laws, potentially leading to an unexpected tax bill in the future arising from their award. Detailed arrangements designed to achieve those objectives have been agreed and are reflected in the process outlined below.
It is important that what is set out below (and in the links provided) is drawn to the attention of Customers’ tax advisers. Provision for the professional costs associated with this is made, as indicated below. It is important also for Customers to understand that, whilst LBG will provide the funds to cover certain expected tax liabilities, the obligation in all cases will be on the Customer to comply with their tax obligations and to discharge their liabilities direct to HMRC.

Tax residence or domicile of Customers

If you have received an award (whether a Panel Award or a Fixed Sum Award), it is important that you tell the Panel as soon as possible if you are, or have been, resident or domiciled for tax purposes outside of the UK. This is because it could have a significant impact on the amount of UK tax due on your award and may also have implications for foreign taxation that the Panel will need to understand in order to assess the tax due.

Taxation of awards received into a Customer’s Estate

It is important to recognise that, where an award is made after a Customer has died, the Customer’s Estate is the ‘Customer’ for the purposes of receiving an award and assessing the tax due. The tax is assessed on receipt of the award by the Estate itself(but the precise application of UK tax might depend on the circumstances and timing of the Customer’s death). The Panel will not consider the tax position of beneficiaries of the Customer’s Estate or the application of Inheritance Tax when assessing the tax. When we refer to a ‘Customer’ in this context we are referring to their Estate.

Customers who have been made Bankrupt

The position may be different for Customers who have been made bankrupt given that, in certain circumstances, their award (or part of it) may be paid directly to their Trustee in Bankruptcy (or the Official Receiver) unless the bankruptcy has been annulled. Additional guidance for Customers in this position can be found here.

Process for obtaining a ‘Tax Award’ from LBG in the Re-Review

The Panel have set out the process through which they will assess, and Customers will receive, a sum from LBG to cover certain tax due on their Panel Award as applicable. (The process and tax position are different where a Customer has accepted the Fixed Sum Award and has therefore left the Re-Review – see below).
The details of the process and approach and the support available can be found at the links below:
- Process for obtaining funds to meet certain tax due on a Panel Award – see here
- Explanation of tax covered and not covered by LBG on Panel Awards – see here
- Funding for tax advice fees in the Re-Review – see here

Tax due on Fixed Sum Awards

Where a Customer elects to accept the Fixed Sum Award option and leaves the Re-Review, LBG will liaise directly with the Customer to fund the entire tax due on the amount received by the Customer, as described here.

Frequently asked questions about tax on Customer awards

If you have questions about the tax process and how it affects you after reading this guidance please consult the Frequently Asked Questions (FAQs) here where we have covered a number of topics raised with us to date. If you can’t find the answer to your question please contact us at info@foskettpanel.com.