Using the Tax System to Encourage Dispute Resolution
Taxing various types of litigation awards to claimants would significantly encourage mediation and out-of-court settlements, in line with government objectives.
The reason is that doing so creates a gap between what the claimant can win and what the defendant can lose.
This is especially appealing at a time when the government is struggling to find the necessary revenues to keep the nation’s finances under control. The recent political fallout over the rise in National Insurance demonstrates how difficult conventional tax rises are.
Politically, taxing damages from litigation is far more acceptable, as voters generally do not expect to be fighting repeated court battles.
It is also easy to administer. The court record makes evasion impossible.
Hence we recommend a wholesale review of all the different types of in-court damages to be subject to appropriate tax rates. In particular, punitive damages and psychological damages.
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