Chapter EIM00610
| Published date | 22 May 2014 |
| Record Number | EIM00610 |
| Court | HM Revenue & Customs |
| Issuer | HM Revenue & Customs |
So far in this manual we have considered the meaning of earnings (see EIM00515 onwards) and the meaning of from the employment (see EIM00600). However, case law has established some further principles that will help you to decide whether or not particular payments are taxable as earnings within Section 62 ITEPA 2003. They are set out below.
- Section 62 is not restricted to payments such as salaries, wages and tips in return for the performance of services. It also taxes other types of employment related payment, such as:
- payments made to employees solely in recognition of changes made in their conditions of service. Such payments relate to the employment and to nothing else. They are ‘from the employment’. They come to the employee because he or she is an employee and for no other reason (see EIM00600) and
- payments made solely for the purpose of inducing a prospective employee to enter into a contract of employment. Payments of this kind usually come from the prospective employer, but they may also be paid by a third party who has no interest in the performance of the services which the employee will undertake under his contract of employment (see EIM00700).
In the High Court in Hochstrasser v Mayes (38TC673) Upjohn J said that to be a profit from the employment a payment “must be in the nature of a reward for services past, present or future”. Decisions in later cases have shown that the words “reward for services” should not be taken literally. In Bray v Best (61TC704) Lord Oliver said:
“I cannot read the phrase ‘reward for services’ as anything more than a conventional expression of the notion that a particular payment arises from the existence of the employer-employee relationship and not, to use Lord Reid’s words in Laidler v Perry (42TC351), from ‘something else’” (page752).
Other decided cases that demonstrate that taxable earnings do not have to be remuneration or reward for services include Brumby v Milner (51TC583)(see EIM00740) and Hamblett v Godfrey (59TC694)(see EIM00690).
- Payments for services under a contract of employment are taxable. A sum that an employee receives for her services under her contract of employment is taxable as earnings within Section 62 whatever the payment is called. There is more about this at EIM00630.
- Taxable earnings may be paid by a person who is not the employer. A payment may be from the employment and therefore taxable as earnings within Section 62, even if it is paid by...
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