NHS Highland is asking HMRC to consider exempting compensation for victims of bullying from tax and national insurance.

The move follows concerns that, by treating the payments as wages, former staff members who were awarded money under a so-called ‘Healing Process’ having been mistreated were seeing payouts taxed and benefits stopped.

One former Highland social work employee told how the £25,000 payment they were offered in compensation – after developing a multitude of mental health issues leading to a suicide attempt and being signed off work – was nearly cut in half after tax.

In a further twist, because the payment was classed as wages, that person’s benefits were stopped.

In a message to people involved in the Healing Process last week, seen by healthandcare.scot, the health board admitted that ‘with the benefit of hindsight’ the processing of payments had not received ‘detailed examination’.

Local MSPs said the issues should have been resolved before the first payments were made.

The Healing Process was set up as one of a series of responses to concerns about widespread bullying uncovered by a 2019 report by John Sturrock QC.

Under the initiative, current and former employees can access psychological support, formal apologies and compensation of up to £95,000 in the worst cases – though higher amounts can be approved by the Scottish government.

Highland health board is now writing to HMRC to ask whether the payments can be treated differently and says an initial response from the tax authorities is expected in the coming weeks. Those who have already received compensation could have tax refunded, if HMRC provides a dispensation.

Highlands and Islands Labour MSP David Stewart said: “Having even small amounts of this money deducted and taxed has disrupted people’s benefits and brought further stress for those who have contacted me.

“What I can’t understand is why this wasn’t thought through more thoroughly in the first place.

“A large number of constituents have continued to get in touch with me, from the start of this whole process more than two years ago, and it’s been a bumpy ride for them. Here’s hoping there’s light at the end of the tunnel!”

The health board has previously insisted that compensation had to be made via the payroll system and was therefore subject to tax and national insurance contributions (NICs).

Ex-employee Sandy Wilkie branded the payment he was offered “shocking” after he said workplace bullying forced him from his job, leading to depression and the breakdown of his marriage.

The former HR lead said: “The intransigence of NHS Highland in their continued public defence of their ‘Failing Process’ is so very disappointing.

“Their HR function fails to show empathy or compassion towards victims of their bullying culture. They prefer to recite process at us rather than understanding how much damage the Healing Process has caused in terms of low outcomes and inappropriate tax and national insurance.

“At a very basic human level, an admission of their errors and an apology may have been helpful.

“NHSH are not living the values of a health and social care provider in their interactions with the victims of their bullying managers and toxic culture. I would have to question their leadership of the whole situation; it is not what John Sturrock QC would have wanted to see.”

First Minister Nicola Sturgeon stepped into the row earlier this month when she said she was “very happy to look into” making changes to the payments.

But Ms Sturgeon suggested it would be more straightforward for the UK Government to fix the issue, as HMRC is a UK agency.

The issue had been raised by at FMQs Highlands and Islands MSP Edward Mountain. Speaking to healthandcare.scot today, he said: “A lot of hurt and confusion has been caused by how compensation payments have been processed by NHS Highland. 

“I am disappointed that NHS Highland had not examined this issue thoroughly enough at the outset of the Healing Process.

“The health board should have asked the question to HMRC months ago, not after some payments had been awarded.

“I support the Healing Process, but this is an incompetent way to handle the compensation process. 

“I will continue to assist NHS Highland and the Scottish government to ensure victims receive the correct amount of compensation they are owed and deserve.”

A spokesman for NHS Highland said: “Based on the specific and unique nature of the Healing Process, which is not a legal or employment process, there is no current HMRC provision for us to process payments except through payroll, deducting PAYE and NICs.

“We have been advised on this position by Shepherd and Wedderburn, who are the legal and tax advisors for the Healing Process. 

“We keep Scottish government updated on matters relating to the Healing Process, although this is a decision for NHS Highland as the employer.

“We have written to HMRC to explain the details of the Healing Process and seek a ruling on the tax treatment, which we would expect to have at least an initial response to in the coming weeks.”

Sign up to our bulletin for key health & social care updates straight to your inbox.